Are days of betting in microcap stocks over?

There is tremendous growth in the shares of many microcap companies these days. It is believed that due to strong fundamentals and increasing number of small investors, there has been a boom in micro shares. Not only this, it is also believed that the new monitoring system of SEBI and Exchanges ESM i.e. Enhanced Surveillance Mechanism has also benefited small stocks. Because of which, the confidence of common investors in these stocks has increased. Speculation activities in these stocks have also been curbed due to increased surveillance measures by SEBI and stock exchanges.

Now what are microcap shares? Companies whose market cap is less than Rs 500 crore are called microcap stocks…there are about 1,750 such stocks…the Nifty Microcap 250 index has given a handsome return of around 47 per cent in the last one year. Experts say that the fundamentals of many companies in these sectors are strong. The results have been good…. and Companies are getting good orders. Because of all this, the stocks are seeing a boom.

But it is also true that if SEBI was not strict then the huge fluctuations in these could not have been avoided… Because of speculation, huge losses have been seen in the market cap of many companies in this sector. In view of this, in June this year, SEBI implemented the ESM framework for micro and small companies with a market cap of less than Rs 500 crore.

Market expert Ravi Singh says that the fundamentals of microcap companies are strong. Because of this, a boom is also being seen in the stocks. It is also true that SEBI’s ESM framework has reduced the possibility of speculation in them and increased investor confidence.

The most important thing is that the ESM system to monitor the shares has prevented huge fluctuations in prices.

If abnormal movement is seen in a stock for three-four days, then it is immediately put in the surveillance system…although some criteria have been set on whether a stock will be put in this system or not.

SEBI has already been monitoring the shares in various ways such as Additional Surveillance Measures or Graded Surveillance Measures. Now SEBI has implemented Enhanced Surveillance Measures framework for microcap shares. This decision is applicable from 5 June 2023. There are two types of monitoring in this – the first is ESM STAGE I and the second is ESM STAGE II. This rule does not apply to government companies or banks and is also not applicable in futures trading.

Microcap stocks seem to be benefiting from this monitoring and strictness. If we look at some of the top microcap stocks… they have given excellent returns ranging from 83 to 107 percent since the month of June.

Many times, speculators, in collaboration with promoters, resort to such tricks in small shares due to which common investors get trapped and suffer huge losses. Now since SEBI is strict, it can be expected that investors will not be cheated.