The Indian stock market has witnessed many scams in the last two to three decades. With every new scam, the credibility of the overall market goes down. The Securities & Exchange Board of India (SEBI) has introduced many measures to protect investors’ interests. Of all, one essential step is the introduction of the ASM list.
What is ASM?
Additional Surveillance Measures is a list that includes stocks that are currently under surveillance due to volatility, volume variation, price variation, etc. The exchanges create the list to alert investors to be cautious while investing in the stocks present in ASM.
There are different parameters based on which company goes to the ASM list. The parameters are High Low volatility, Client Concentration, Closure to Closure Price Variation, Market Capitalization, Volume Variation, Delivery %., No. of Specific PANs, PE.
Check companies in ASM List here
Types of ASM
There are two types of ASM – Short Term ASM and Long Term ASM.
Long-term ASM: There are six criteria for stock selection in the Long Term ASM framework. As a retail investor, you need not all. To give you an idea, below is one such criterion:
High-Low Price Variation for three months should be greater than or equal (150% + Beta of the stock * Nifty 50 Variation). The concentration of the top 25 clients must be greater than or equal to 30% of the combined trading volumes of NSE and BSE in the last 30 days.
Short Term ASM: It has two stages. Based on the satisfaction criteria, securities are put in one of the two-stage:
- Stage 1 – In this stage, the companies are given a chance to provide clarification. The applicable margin rate for these stocks will be 1.5 times the existing margin of 40%, whichever is higher. The maximum margin is capped for them is 100%
- Stage 2 – The stocks added to this stage will have a margin rate of 2.5 times the existing margin, or 80%, whichever is higher.
Can all stocks go on the ASM list?
No, there are some exceptions to putting securities on the ASM list. SEBI cannot put stocks from the following categories on the ASM list:
- Stocks under trade to trade segment
- Securities with derivative product
When do stocks come out of ASM?
Securities that complete the review process for 60 calendar days under the long-term ASM framework become eligible to exit from the framework stage-wise. They come down from Stage 4 to Stage 1 and exit the list.
In the case of stocks under the short-term framework, they are eligible to exit after a minimum period of five days and a maximum period of 15 days if they further do not attract any criteria.
What is the impact?
If your stock is in ASM, you will notice two changes:
- Stocks get placed in the price band of 5%
- Margins shall be levied at the rate of 100%
- You won’t be able to use these shares as collateral
What should investors do?
As a retail investor, if one of your stocks is in the ASM framework, nothing will change concerning trading. But low leverage can reduce the volumes. The maximum percent ASM stock can go intraday is 5%. It is also the maximum possible downside.
Investors should know it is a precautionary step, and it does not always mean that the exchange or SEBI is taking any disciplinary actions against the company. The surveillance ensures that the company is clear of any malpractice.
If the company has good finances, you should patiently wait for it to come out of ASM.
A perfect example: CDSL
In July 2021, CDSL was added to the ASM list. If you look at the company, it is fundamentally strong. The stock performance before this period was exceptional. It made SEBI take some cautious steps, and hence the stock is on the list of ASM-Stage (IV). Investors should note that the company went into the ASM list only because it satisfied the ASM criteria.
However, sometimes stocks stay in ASM for a long time. With low volumes, they may not grow. Investors should be careful before investing in any company on the ASM list. They should check the fundamentals before making any investment.
Here is the solution for you
Your stock getting added to the ASM list is not a sign of worry. If it does go, you will have to be careful and do some research. For a retail investor, it may not be possible to understand the reasons and decide if they should press the panic button or not. This is where Jarvis comes to the investors’ rescue. The app scans every listed stock on the exchanges on thousands of parameters. If something is off, being a Jarvis user, you are notified immediately. It helps you make safe investments with the potential to give you maximum returns. Download our app for stress-free investment.
Leave a Reply