Sebi ban on shell companies: You should be seriously worried

STOCK MARKET - If you hold shares in any of the suspected shell companies that have been banned from trade following the Sebi order on Monday, you have a genuine reason to worry – at least for now.

On Monday, market regulator Sebi, directed the stock exchanges to ban trading in shares of 331 suspected shell companies and placed them under a graded surveillance measure (GSM) stage VI, where trading in the security is allowed only once a month with “surveillance deposit” of three times the trade value.

According to reports, mutual funds and investors collectively own shares worth nearly Rs 9,000 crore in these entities, with at least five companies commanding a market capitalisation (market-cap) of Rs 500 crore each. Some of the prominent ones among those banned include J Kumar Infraprojects, Parsvnath Developers, Prakash Industries, SQS India BFSI, Gallant Ispat, Adhunik Industries and Assam Company.

Though experts welcome the move to ban shell companies and protect investor wealth, they feel the order will prove to be particularly harsh on companies that eventually get a clean chit from the regulator post investigation.

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