Shares of KIOCL and ITI, which are among stocks that have seen a sharp rally this year, plummeted nearly 15% intraday today.

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These are among stocks which were flagged in a recent CNBC-TV18 report, which underlined the likely key reason behind their sharp rise: their low public float.

STC, MMTC, Punjab & Sind Bank, and UCO Bank are other such low public float stocks, which have risen sharply.

Free float refers to the portion of a company's shares that is publicly traded and readily available for trading in the stock market. It excludes promoter-held shares, government-held shares, shares held in employee trusts, and any other locked-in shares that are not available for trading in the open market.

The free float is an important concept because it gives an idea of the company's stock liquidity and volatility. Stocks with a larger free float tend to be less volatile because they have a wider shareholder base and higher liquidity.

KIOCL has a minuscule free float of less than 1%. Last year, the company reported losses at both the operating and net levels.

This is also the case with ITI, where the Indian government holds a substantial 90% stake, while the Special National Investment Fund, another government-backed entity, holds 7.6%. Consequently, the free float is only around 2%. Much like KIOCL, ITI also posted EBITDA and net losses last year.

MMTC also experienced a rollercoaster ride, with 93% of its shares controlled by LIC and the Indian government. While they managed to report a profit last year, it was largely due to other income, concealing an underlying net loss.

However, in the case of MMTC and STC, the dip in their stock prices could have been accelerated following reports that the government is considering shutting them down.

According to CNBC-TV18 sources, a high-level meeting on October 23, chaired by Union Commerce and Industry Minister Piyush Goyal, is likely to take a call on the closure of MMTC, STC and the Project & Equipment Corporation of India (PEC).

Punjab & Sind Bank and UCO Bank also have free floats ranging from 2% to 4%, and trading at price-to-book ratios of two to three times. They have lost approximately 10-12% from their recent peaks.

It is increasingly evident that the impact of low free float is a crucial factor to monitor. It is imperative to focus on fundamentals before investing, as stocks like these may surge only due to their limited availability in the market.

KIOCL and ITI shares ended the day at ₹434.35 and ₹289.75, respectively, down close to 9% each, while MMTC ended at ₹78.38, down nearly 10%.

(Edited by : Shweta Mungre)

First Published:Oct 18, 2023 4:38 PM IST