Graded Surveillance Measure (GSM)

Posted by Flattrade August 14, 2021

Graded Surveillance Measure is a framework introduced by Securities Exchange Board of India, the regulatory body for stock and commodities markets, along with exchanges in India. The measure is to protect investors from being mislead and also monitor unusual price changes and spurt in volumes of company shares which is not in sync with the fundamentals and financial strength of company. These include company earnings, price to book value, fixed assets, net worth, P/E multiple, etc.

There has been instances in Indian stock market where stocks prices have been manipulated and subjected to extreme price volatility. The different processes and stages mentioned by SEBI will discourage market manipulators to pump and dump the stock, while helping the market participants to be really cautious and warn them about such events and stocks.


Criteria for shortlisting stocks under GSM

For a scrip to be shortlisted in GSM list, all the following criteria must be fulfilled

  1. Securities with latest available net worth less than or equal to Rs. 10 crore. Net worth is calculated as [Share Capital + Reserves & Surplus – debit balance in P&L]
  2. Securities with latest available Net Fixed Assets less than or equal to Rs. 25 crore. Net Fixed Assets is the total of Tangible Assets and Capital Work in Progress
  3. Securities with Price-to-Earnings (PE) greater than 2 times PE of Benchmark Index (Nifty 500) or negative PE.


Moreover, a company will be directly placed in Stage I under GSM, if it satisfies the following criteria

  1. Securities with full market capitalization less than Rs. 25 crore
  2. Securities with PE greater than 2 times PE of Benchmark Index (Nifty 500) or
  3. If the security has a negative PE, the following should be considered: P/B (Price-to-Book) value of scrip greater than 2 times the P/B value of Benchmark Index (Nifty 500) or P/B value is negative

 

Surveillance Actions

Initially, when SEBI came out with these rules in 2017, there were six stages, but the stages were revised and decreased to just four stages. The following stages and surveillance actions:

Stage I: Applicable margin rate shall be 100% and price band of 5% or lower as applicable.

Stage II: Trade for trade with price band of 5% or lower as applicable and Additional surveillance deposit (ASD) of 50% of trade value to be deposited by the buyers.

Stage III: Trade for trade with price band of 5% or lower as applicable and trading permitted once a week (every Monday or 1st trading day of the week) and ASD (100% of trade value) to be deposited by the buyers.

Stage IV: Trade for trade with price band of 5% or lower as applicable and trading permitted once a week (every Monday or 1st trading day of the week) and ASD (100% of trade value) to be deposited by the buyers with no upward movement.

Shares in Trade for Trade segment are those stocks which cannot be traded intraday. Trade for Trade segment is also known as T2T segment and stocks in this segment must be paid fully and taken delivery. Only after delivery, a client can sell the stock which is T+2 days.


Companies excluded from GSM

  1. Securities already under suspension
  2. Securities which have derivative products
  3. Securities which are part of NSE or BSEindex
  4. Public Sector Enterprises and its subsidiaries
  5. Securities listed in the past one 1 year through Initial Public Offering
  6. Securities which have paid a dividend for each of the last three preceding years
  7. Securities with Institutional holding greater than 10%, provide, if the promoter entity has not offloaded any share in the last 5 yearsand the current market price is within the range of High & Low price in the past 3 years
  8. Securities where the price discovery is yet to take place

For more details on shortlisted shares under GSM, click here 

To read more about Additional Surveillance Measures, click here

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