India’s premier stock exchange, the BSE, has categorized Equity scripts into category like A, B2, B1, S, TS, Z, & T to provide assistance to the investors. This classification is based on several factors like trading numbers and volumes, market capitalization, profits, track records, shareholding patterns, dividends, and some qualitative aspect.
As on Feb. 2008 subsequent criterion are designed for classifying the stocks into different categories by the BSE.
Group A– Highly Liquid
1) These are the main liquid counters amid the whole set of stocks listed within the BSE.
2) They are companies that are rated exceptional in all aspects.
3) These are best for a beginner investor’s portfolio in view that information regarding them is extensively accessible.
Group T – Trade to Trade
1) Stocks that fall below this arrangement of the exchange lie under this category.
2) Every trade here is known with a separate transaction plus there’s no hiding-out of trades like in the regular rolling system.
3) The dealer needs to pay for taking delivery for her/ his buys and send shares for her/ his sells, for both on the succeeding day following day of trade (T+2). Assume you buy 100 shares of grade ‘T’ scrip and sell another 100 on same day. Thus, for the shares purchased, you will have to reimburse the exchange within two days. And for the other lot that you have sold, you must deliver the shares in T+2 days, because the exchange has to distribute it to the person who bought it.
4) Failing to produce delivered shares against the deal made would be meant as short sales. Exchange would, in that case, upon T+3rd day, charge an amount which is 20 % high than the scrip’s finishing price that day. That means except the scrip’s price fall more than 20 % from the value of your sale deal, you will have to pay fine for “short sale” made.
5) Yet, there would be no credit ready for you in case of considerable fall in the price of shares. The exchange would, instead, acclaim the increase to its investor’s fund.
6) Stocks which are frequently moved out and in of T-to-T settlement depending upon the speculative significance that governs them.
Group S – Small and Medium
1) They are shares that lie under the BSE Indo next segment.
2) BSE Indonext comprises medium and small companies that are scheduled in the RSE.
3) The S’ grade companies – small and typically one with earnings of Rs 5 Cr. plus tangible assets for Rs 3 crore. They also have little free-float capital by the promoter holding high as 75 %.
4) Except their smaller size; other risk which comes with investing within them is lower liquidity. Due to lower volumes, such stocks may also observe frenzied price movements.
Group TS – A Mix of S and T Group
1) Stocks in this category are ‘S’ grade stocks which are settled on trade-to-trade base owing to surveillance necessities.
2) This essentially means these counters might not come with easy exit option, because liquidity would be low and daily netting of purchase-sell trades isn’t permitted either.
Group Z – Caution
1) ‘Z’ grade stock are companies which do not comply with the exchange’s list requirements or ones which have failed to restore investor complaints.
2) This group also includes stock of companies which had dematerialisation arrangement with one of the 2 depositories, NSDL and CDSL.
3) These stocks might be the most dangerous in terms of different grades accorded. Firstly, not much information is available in the civic domain of these companies, creating it tough to know about them. Secondly, low media coverage which keeps them hidden from public analysis also makes them vulnerable to inside trading. Lastly, these companies have a poor count in redressing investor’s complaints.
Group B – Left behind
1) This group comprises stocks which do not fall in any other groups.
2) Such counters see normal volume and are settled beneath the rolling system. Within all respects the stocks resemble the counterparts in ‘A’ leaving their size. Usually, stocks of small and mid- market capitalization lie under the grade.
The SLB Group
In 2007, Securities Exchange Board, India, announced the beginning of Securities Lending and Borrowing Scheme. SLB provides a stage for borrowing securities to enable agreement of securities which were sold short. Presently, the list of SLB has 207 companies. Investors can vend a stock that he/she do not possess at the trade time. All the classes of investors, like, institutional and retail investors, are permitted for short sell.
1) The “F” Group presents Fixed Income Securities.
2) The trading within Government Securities by investors are done under the group “G”.