Thursday, December 19, 2013

Rationalisation of Rules in Periodic Call Auctions for Illiquid Scrips

Today SEBI came out with revised guidelines for Periodic Call Auction (PCAS) in equity market (Here).

Also before we understand, what changes are done and how it would impact the stock criteria, I would request you to please refer my previous blog on this topic for smooth continuation (Here).

With this circular, SEBI has rationalised criteria for stock becoming eligible for PCAS. Effectively SEBI has bought down the eligible universe to only small cap and illiquid stocks.

Impact of New Circular :

a) All Stocks which has a daily turnover of more than Rs 1 Million will not come under PCAS. (Effectively SEBI has moved from selection criteria of Quantity and Number of trades to Value of trades. A very rational move)

b)  All Stocks which has a market cap of more than Rs 10 Crore will not come under PCAS.

c) All consecutive dividend paying companies will not come under PCAS (For last 2 years out of 3 years)

d) All companies which are profitable consecutively will not come in PCAS (For last 2 years out of 3 years) along with less pledge of share (Not more than 20%)  and Book value of more than 3 time the face value.

e) Previously If stock goes in PCAS, It has to be in PCAS for 2 quarters, which is now reduced to 1 quarter only

f) All Un-executed orders in PCAS can be carried forwarded to next PCAS auction for same day.

Well, SEBI has effectively kept only small cap, penny stocks in PCAS, Which are illiquid and also non profitable in the ambit of PCAS. So most of the stock will be out of PCAS now. 

So now PCAS will be a dead segment and now It will die a natural death in long run, because now there wont be many companies in PCAS and they would be very illiquid.

As stated in my previous blog, SEBI has to make amendments in rules of PCAS segment, but now they have liberalised most companies out of PCAS

This is not a recommendation to anybody whatsoever to buy OR sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.



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