You can buy a listed company for Rs 1 crore!

You may not be able to buy you a decent flat in Mumbai with Rs 1 crore (Rs 10 million), but stock prices have fallen so much this year that the sum may buy you an entire listed company, maybe even two.

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Acquiring a listed company is a lengthy process. It requires approvals from shareholders, management and compliance of the rules set by the market regulator.

If one is willing to take the trouble, data provided by BS Research Bureau show that at least 38 companies, traded actively on the Bombay Stock Exchange, are available at a valuation of less than Rs 1 crore (Rs 10 million).

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The cheapest among the lot is Ardi Investments and Trading, which is quoted at a total market capitalisation of Rs 11 lakh.

The stock on Wednesday closed with a gain of 4.96 per cent at Rs 2.75, with 50 shares changing hands.

Sunrise Industrial Traders was valued at Rs 28 lakh at a market price of Rs 5.52.

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The market valued Crystal Software at Rs 48 lakh. At least 35 other companies from across sectors as varied as diamonds, pharmaceutical, information technology and multimedia are trading below the Rs 1-crore mark.

Further, at least 112 companies populate the market cap range between Rs 1 crore and Rs 2 crore (Rs 20 million).

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A total of 864 companies trade at a market capitalisation of Rs 10 crore or less. If your budget is a little bigger, you will get another 543 companies in the Rs 10 crore (Rs 100 million) to Rs 25 crore (Rs 250 million) bracket.

Experts say these valuations are unrealistic and unjustified. "You can't set up a listed company on Wednesday for a crore rupees," said Rahul Nangalia, CEO, Nangalia Stock Broking.

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"During bull runs, valuations take flight and reach unjustifiable levels. Reverse is happening now. Even this is unjustified."
According to him, traders are often forced to sell off stocks to make good losses elsewhere. "In the absence of new buying interest due to the gloom around, such sales result in a free fall from which the stocks do not recover," Nangalia added.

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Most brokerage firms do not have any research on these stocks. If and when these catch the fancy of investors, these depend largely on word of mouth.

Despite the limited exposure in the mainstream media, they still remain actively traded, bought and sold, on a daily basis.

However, volatility is high in these small stocks because many of these companies have a very low investor base of a few hundred investors and are traded thinly.

For example, Ardi had 672 public shareholders holding nearly 60 per cent of the company. Sunrise had only 414 public shareholders while Crystal was a little better at over 9,000 shareholders.

Sudhir Bhalla, director, Ashlar Securities, said these small stocks were risky and subject to extreme volatility.

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"There is no need to look at such small risky bets. Money can be made in larger, less risky stocks." Nangalia also said the small investor base and low market capitalisation made these easy targets for operators and manipulation.

But a good number of these stocks trade above Rs 10, the conventional cut-off for penny stocks.

Over half of the 1,455 stocks with a market capitalisation of Rs 25 crore (Rs 250 million) or less traded at price of over Rs 10.

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At least 27 companies were traded at a market price of Rs 100 or more.

Another 51 were available at prices ranging between Rs 50 and Rs 100. Bhalla of Ashlar said: "There is a sale on in the market. Many good stocks are available at cheap prices. Unfortunately, there are not many takers for this market, even at a discount."