Goodbye Kingfisher? And many others? | Value Research Delisting stocks punishes investors rather than promoters, but there's a deeper problem as well
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Goodbye Kingfisher? And many others?

Delisting stocks punishes investors rather than promoters, but there's a deeper problem as well

Late last week, we learnt that the two exchanges had decided to delist Kingfisher Airlines and UB for violations of the listing agreements. This was described as a crackdown in the news, perhaps it is. The company violates the listing agreement, so it can't stay listed any more. In this case, the violation is said to be a failure to file the quarterly results for two quarters in succession.

The legal logic may be clear, but in India, the on ground reality is that this punishes the shareholders, and would probably come as a relief to the promoters. At this point of time, how does it matter to Vijay Mallya whether Kingfisher airlines is listed any more? If, by some great miracle, his businesses fly again, it's not going to be because he managed to raise money on the stock markets or anything like that. The stock is languishing at ₹2 with no trading whatsoever. The only thing is that if anything positive ever happens again, it is possible that some of those who are holding the stock may get something out of it. But with the stock delisted, even that remote hope is gone.

Of course, all this is just as true for many stocks which are not as high profile as Kingfisher. While Kingfisher and others of the type are an extreme problem, all but a couple of hundred stocks have less liquidity that will make investors confident of buying them, specially when they are attractively priced. This illiquidity of smaller stocks in India is a circular problem. Basically, they are illiquid because investors think they are going to be illiquid. The only thing that can break this circle is if there is an institutional mechanism to create a market in them, for example, by supporting market-making activities.

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