The Hindu Business Line : Companies traded on BSE close to this year's high

KEY stocks indices such as the Sensex and the Nifty may be ruling much below their all-time high levels, but the number of companies traded on the BSE are close to their yearly high.

According to stock exchange data, on Friday, 2,259 companies' equity shares were traded on the BSE. This is close to the highest number of companies traded so far this year - 2,269 (on January 5).

But what is interesting is the BSE Sensex at that time was above 6,000 and touched an all-time high of 6,250 on January 9, while, on Friday, the benchmark index closed at 5,527 - nearly over 700 points below the peak level.

What is more interesting is that there has been a sharp rise in trading in stocks from B-2 and Z group shares in the last three months. The number of companies traded on the BSE increased from 1,773 on June 30, (just after the UPA Government came into power) to 2,259 on September 24, a jump of 27 per cent in just three months.

There is also a rise in the stock price of most of the companies' shares in which trading resumed in the last three months. In a number of cases, the stock prices have gained more than 100 per cent in a short period of time.

Brokers and analysts attribute this trend to market players making book adjustment to take advantage of the revised capital gains tax, which comes into effect from next month.

"If shares are sold from next month, investors have to pay a 10 per cent short-term capital gains tax and zero long-term tax, and this has led to active trading in small cap companies shares," said a top official of a broking firm.

He said the interest in these stocks is mainly from high net worth individuals and retail investors, who are in the higher tax bracket.

Another reason for increased activity in the illiquid stocks is the absence of FIIs in the last few months, which led to operators turning active in these stocks.

"There has been low FII interest for a couple of months and local operators are pushing these stocks," said Mr Ambarish Baliga, Vice-President, Karvy Stock Broking.

He said with rise in the stock price, several retail investors are also looking at low priced stocks. "Currently, retail investors are not ready to buy shares which are fundamentally strong and quoting above Rs 250. But they are eager to buy shares of companies which are low priced even though they are fundamentally not strong," Mr Baliga said.

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