The issue faced by many small cap stocks is the same as the issue being faced by Bombay Stock Exchange. Liquidity begets Liquidity

Think of a small-cap stock that is under-researched as a student who has just passed out of College. He wants a Job but Employers want Experience. Question is - how to get experience without having a Job in the first place

Major Markets have what is known as market maker or liquidity provider who provide two way quotes for stocks. The spread they provide is their profit. https://en.wikipedia.org/wiki/Market_maker

But market making would not work if a stock is restricted to moving just 2% a day on either side as a lot of stocks today are based on classifications like ASM / GSM

Limits of how much a certain stock can fall in a day doesn't change the fact that there are sellers who wish to get rid of the stock at any price and buyers who aren't willing to buy at the current minimum price

Case in Example: Agrophos India. A stock that was pumped up daily met its nadir on 26th Dec 2019 (Open Price of the day 155). How much pumping? A few days before this was published (Brand Connect = Brand is Paying for it) https://www.moneycontrol.com/news/trends/features-2/our-target-revenue-is-rs-150-crore-rajkumar-gupta-cmd-agro-phos-4686901.html

From 155, it went on a selling circuit which did not open till stock price reached 11 bucks (93% down). Did the staggered fall help anyone I wonder. What if this fall took place in a day or two - would the stock have bottomed out earlier and provided an exit opportunity sooner?

From Whatsapp to Twitter, everyone is gung ho that if not 27K Crores, Small Caps will see at least 10K Crores which means that stocks should go up by approx 50% (give or take) :)

Having said all that, Liquidity cannot be forced onto stocks where there is just too little capital that is publicly available. If Promoters + Institutions hold 99% - how the hell can anyone provide liquidity with literally zero floating stock

I think there are a lot of ways to encourage fresh monies to move to Small Cap Stocks without having to pass rules mandating Openly Redeemable Funds to invest a large portion in stocks they cannot exit in a hurry.

What happened in Franklin (Debt) is the same that is going to happen here when the trend turns bearish. Should Investors pay for the sins of others? #EOT