NSE – Classification of Shares

(This is an excerpt from the Equity Research Module of National Stock Exchange)

  

NSE Classification of Shares:

NSE broadly classifies stocks in six categories namely A, B, T, S, TS and Z. The classification of stocks is done on the basis of their size, liquidity and exchange compliance and, in some cases, also the speculative interest in them.

A Group – Highly Liquid

• These stocks have high liquidity among all stocks listed on NSE.
• These are companies which are rated excellent in all aspects; Market capitalization is one key factor in deciding which scrip should be classified in Group A.
• Volumes are high and trades are settled under the normal rolling settlement

T Group – Trade to Trade:

• The stocks that fall under the trade-to-trade settlement system of the exchange come under this category. 
• Each trade here is seen as a separate transaction and there’s no netting-out of trades as in the normal rolling system. 
• The trader needs to pay to take delivery for his/her buys and deliver shares for his/her sells, both on the second day following the trade day (T+2).

S Group – Small and Medium

• These are shares that fall under the NSE’s Indonext segment.
• The NSE Indonext comprises small and medium companies that are listed in the regional stock exchanges (RSE).
• 'S’ grade companies are small and typically ones with turnover of Rs 5 Crore and tangible assets of Rs 3 Crore. Some also have low free-float capital with the promoter holding as high as 75 per cent.
• Besides their smaller size, the other risk that comes with investing in them is low liquidity. Owing to lower volumes, these stocks may also see frenzied price movements.

TS Group – A Mix of T and S Groups:

  

• Stocks under this category are but the ‘S’ grade stocks that are settled on a trade-to-trade basis owing to surveillance requirements.
• This essentially means that these counters may not come with an easy exit option, as liquidity will be low and intra-day netting of buy-sell trades isn’t allowed either.

Z Group – Caution

• ‘Z’ grade stocks are companies that have not complied with the exchange’s listing requirements or ones that have failed to redress investor complaints.
• This grade also includes stocks of companies that have de-materialization arrangement with only one of the two depositories, Central Depository Services (India) Ltd (CDSL) and National Securities Depositories Ltd (NSDL). 
• These stocks may perhaps be the riskiest in terms of various grades accorded. For one, not much information would be available in the public domain on these companies, making it tough to track them. Second, the low media coverage that keeps them relatively hidden from public scrutiny also makes them more vulnerable to insider trading. Third, these companies already have a poor score in redressing investor complaints.

B Group – Left Over

• This category comprises stocks that don’t fall in any of the other groups.
• These counters see normal volumes and are settled under the rolling system; in all respects these stocks resemble their counterparts in ‘A’ but for their size; typically, stocks of mid- and small market capitalization come under this grade.

SLB Group

• Securities Exchange Board of India, in 2007, has announced the introduction of Securities Lending & Borrowing Scheme (SLBS).
• Securities Lending & Borrowing provides a platform for borrowing of securities to enable settlement of securities sold short.
• There are 207 companies in the SLB list; Investors can sell a stock which he/she does not own at the time of trade.
• All classes of investors, viz., retail and institutional investors, are permitted to short sell.

Other Classifications

• The “F” Group represents the Fixed Income Securities.
• Trading in Government Securities by the retail investors is done under the “G” group.

Classification Based on the Market Capitalization:

What is market capitalization?

Market capitalization is often known as “market cap” or “m-cap” which is the total value of the shares outstanding in the market on a particular point of time. It could be computed with the following formula:

Price per share * Number of tradable shares

Large Cap or Big Cap:

Generally companies with a market capitalization value of more than Rs 10 billion are classified as large cap. The term large cap is abbreviation of the term ‘large market capitalization’

Mid Cap:

Companies with a market capitalization between Rs 2 and Rs 10 billion are known as Mid Cap. Mid cap is an abbreviation for the term “middle capitalization”

Small Cap:

Normally, the companies with a market capitalization of between Rs 300 million and Rs 2 billion are known as small cap. Small cap is an abbreviation for the term “small capitalization”  

Note ** :  These classification as above are only approximations that change over time. Also, the exact definition of these terms can vary among the various participants in the investment business.