High debt and share pledging are being seen as a common thread in firms whose shares are getting hammered at the bourses.
“The regulator is concerned about the systemic risk and impact on retail investor sentiment. Additional disclosures and trading curbs are being mulled to keep the situation under check,” said a person with direct knowledge of the development.
The people said some companies have approached Sebi to probe the unusual movement in their stock prices.
Another common pattern is that most stocks
that have tumbled in recent days are traded in the futures and options (F&O) segment. Stocks
with F&O contracts do not have circuit filters. They can fall or rise by any amount. There are more than 200 stocks
in the derivatives segment.
Non-derivatives stocks typically have filters between 5 per cent and 20 per cent.
Sources say exchanges and Sebi mulled filters for derivatives stocks. However, the feedback received was that it could come in the way of price discovery.
People in the know added that companies that have seen a sharp fall in their market value will be weeded out of the F&O segment soon.
Market participantsare calling for a change in the regulatory framework to tide over market volatility.
“Indian regulators could well consider restoring circuit limits for all stocks and exercising their extant powers to suspend trading in a stock in an extraordinary event,” said Sanjeev Prasad, co-head, Kotak Institutional Equities, in a note.
“We understand that there is a fine line between maintaining the sanctity of the market and over-enthusiastic regulation, but we believe wild allegations and equally wild market responses serve little purpose and probably dent the confidence of small investors in the market,” said Prasad.
Market experts also say the current disclosure regime around pledged shares is opaque and needs to be re-looked. “Share-pledging data is closed at the end of every quarter. While most investors look at fundamentals of a company, often they are caught off guard,” said Alok Churiwla, managing director, Churiwala Securities.
Further, promoter shares in a lot of cases are held through holding companies, which make it challenging for minority shareholders.
Experts say recent events have underscored the importance of having high corporate governance standards. Dhiraj Relli, MD and CEO of HDFC Securities, said they are increasing the margin requirement to deal with the spike in volatility.