Date:16/08/2005 URL: http://www.thehindubusinessline.com/2005/08/16/stories/2005081602190100.htm

Back Illiquid stocks — They may be shunned by the market but they reward their shareholders

Suresh Krishnamurthy

NOT all the 3,000 of the 5,000 listed stocks that are not traded on a given day represent companies without operations.

There are many that are quite profitable and, what is more, have backed their performance with good dividend payouts.

A Business Line analysis has thrown up a list of 75 companies, listed in the country's stock exchanges, which have paid dividends but have not been traded for more than a year.

Public holding in these illiquid stocks is also high. The performance of a few companies in the latest financial year has also been impressive.

About 50 of these companies have also been paying dividends for the past three years and have built up a track record. Yet they have not been traded in recent times.

For instance, consider IMPAL. The stock, that is part of the TVS group, has a public holding of 51 per cent.

The company has paid dividends in excess of 100 per cent in the past three years. Profit growth in the past two years has been above 10 per cent. The stock was however last traded only in 2001.

Or consider the stock of Sharda Motor, another auto ancillary company. The company's profits jumped up by 42 per cent in FY 2005.

The public holding in the company is about 17 per cent and the company has paid dividends of 100 per cent in the past two years. The stock however was last traded in 1998.

In January this year, the BSE came out with an initiative to infuse liquidity into stocks of smaller companies. It launched the IndoNext platform in collaboration with regional stock exchanges.

Trading volumes in the IndoNext platform has improved since launch but illiquidity continues to haunt a number of dividend paying companies.

There are a few companies where low public shareholding, as in the case of Ircon International, Shriram Pistons, Swaraj Automotives and DLF Universal, may be behind the illiquidity.

Ircon International, which paid dividends of about 380 per cent, has a government holding of 99.7 per cent. In a majority of cases, however, public shareholding was considerable and higher than 10 per cent.

Cumulatively, these 75 stocks paid dividends of Rs 87 crore. If these stocks had commanded a dividend yield of 3 per cent, then the aggregate market capitalisation of these stocks would be Rs 3,000 crore.

With public holding at an average of about 20 per cent, illiquidity in these stocks could have locked in Rs 600 crore value of retail investors' money.