Stock markets: Know grouping of shares in BSE before investing

shares witness normal trading volumes and come under the rolling settlement system. As on date, 2,216 companies are classified under group ‘B’.”>Group ‘B’ accommodates all the shares that do not fall into any of the above discussed categories. Generally ‘B’ group shares witness normal trading volumes and come under the rolling settlement system. As on date, 2,216 companies are classified under group ‘B’.

Most of us know that Bombay Stock Exchange (BSE) is the oldest stock exchange in Asia which has around 5,000 companies listed on its platform for buying and selling. BSE categorises the shares of different companies into various groups. It is essential for investors to understand the nuances of this classification before investing.

Grouping of shares
The grouping of shares is based on what the stock represents. Accordingly, BSE classifies the equity shares into multiple groups such as a ‘A’, ‘T’, ‘S’,‘Z’ and ‘B’. A share classified in ‘A’ group means that it is one of the most liquid stocks among all the shares listed, has higher trading volumes, and fulfils the compliances of the exchange. Further, when a share is placed this category it indicates that stock trades are done under the normal rolling settlement process. As on date, 387 companies are placed in this category.

Stocks classified under the T group form part of the trade-to-trade (T2T) segment. Shares belonging to this category are not permitted to be traded on an intraday basis. So, investors or traders who like to buy these shares should take delivery by paying full amount. Shares under this group are frequently moved in and out of trade-to- trade settlement to avoid speculation. As of now 368 shares fall under this category.

Shares of small and medium companies are classified under ‘S’ group. Companies under this group have a turnover of Rs 5 crore and tangible assets worth Rs 3 crore. Generally, these shares have low volume and liquidity and these shares often witness frantic price fluctuations. As on date, 40 companies are listed under this group. ‘Z’ group was introduced by BSE in 1999. Stocks clubbed under this category are those which have failed to comply with certain guidelines of BSE. These companies may not have fulfilled the exchange’s listing requirements, or failed to redress investor complaints, or have not made prior arrangements with depositories like CDSL and NSDL for dematerialisation of their shares. As on date, 433 companies are placed under this group.

Group ‘B’ accommodates all the shares that do not fall into any of the above discussed categories. Generally ‘B’ group shares witness normal trading volumes and come under the rolling settlement system. As on date, 2,216 companies are classified under group ‘B’.

What is the inference?
Generally ‘A’ group shares are good for trading and investing purposes. Shares under ‘T’ group are not necessarily risky ones as intraday trading is not permitted. Often, shares under this category provide protection against speculative trades and disruptive price movements.

The risk of investing in ‘S’ group stocks is that all the companies are small in size and have low liquidity. One should keep away from buying and selling ‘Z’ group category shares as they fail to fulfil even the listing norms of the BSE. Group ‘B’ shares are one notch lower than that of Group ‘A’ shares in terms of liquidity and other parameters set by BSE.

To conclude, it is essential for investors to know the different group of shares and their characteristics before investing. However, an investor should go for thorough due diligence before investing in any company’s shares, irrespective of the group to which a company belongs.

Stock picking

• BSE classifies equity shares into multiple groups such as a ‘A’, ‘T’, ‘S’,‘Z’ and ‘B’ based on what these shares represent
• ‘A’ group stocks are the most liquid, have higher trading volumes, and fulfil the compliances of the exchange
• ‘B’ group shares witness normal trading volumes and come under the rolling settlement system
• Shares of small and medium companies are classified under ‘S’ group. These shares have low volume and liquidity and often witness frantic price fluctuations

The writer is a professor of finance & accounting, IIM Tiruchirappalli