Stuck in a stock

Stuck in a stock market where trading will be suspended soon? Experts suggest investors to exit.

If the listed entity remains not compliant for six months after suspension, then the trading will stop completely.

Recently, BSE and NSE said trading in nine stocks will be suspended. These companies, including well-known names like Gitanjali Gems, Amtek Auto, are under scanner for not complying with listing norms pertaining to submission of financial results.

The Modi government has been stringent with regards to shell companies and compliance with market nomrs. The corporate affairs ministry (MCA) and even the regulators — RBI and SEBI — have hinted that non-compliance will not be tolerated.

The number of cases has gone up where investors have suffered because of company management decisions. In some cases, oversize debt or overambitious projects destroyed companies' or even forced them into bankruptcy.

Experts who Moneycontrol spoke to said companies which don't comply with regulations are better avoided.

The framework (LODR - Listing Obligations and Disclosure Requirements - Regulations) was put in place as a stronger mechanism to check non-compliance of listing conditions, wherein exchanges will have powers to freeze promoter shareholding and even delist the shares of such defaulting companies," Prashanth Tapse, AVP Research, Mehta Equities told Moneycontrol.

The exchanges said if any company complies with the provisions of the LODR (Listing Obligations and Disclosure Requirements) Regulations on or before the date prescribed by the exchanges, the trading in its security will not be suspended.

The BSE asked companies to comply with regulations by September 4 and in case of NSE, the date is September 5.

Trap of Badly-run Companies

If someone is caught in such a trap then it would be difficult for one to exit as the value of shares either would be far below their buying price or they would have to keep hoping for improving performance which can give them better valuations.