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In recent times, return on stocks have shown an inverse relationship with their float levels, as per an investor memo issued by Sage One Investment Managers.

Concurrently, valuation levels in the broader (non-largecap) markets have surged to heights seen only at previous market peaks.

“Within India, the companies with low float and those benefiting from government spending significantly outperformed the major indices," the memo said.

Many pockets in the markets are moving extremely fast with very little time to act. High liquidity is propelling prices in these segments to unprecedented levels, triggering fear of missing out (FOMO) among the investors, it said.

Many low float stock prices are showing signs of manipulation. One needs to remain extremely vigilant about such stocks and pockets, the memo said.

An analysis by the firm breaks the performance of low float (less than 15 per cent float) versus the rest for the largest 1,000 companies (as of February 16, 2024). It further breaks it down into the performance of PSU vs non-PSU over the last six months, one year, and two-year time horizon. The divergence in performance across these categories is remarkable and there is no denying a large impact of float on the returns, the memo said.

In the last six months, the low float basket is up 84.1 per cent vs 38.6 per cent for the rest. The PSU basket is up 81.2 per cent vs 35.9 per cent for the non-PSU basket. The low float PSU basket is up 110.7 per cent vs 50.4 per cent for the non-PSU basket.

The highest divergence is between low float PSUs at 110.7 per cent and non-low float non-PSUs at 35.7 per cent. Non-low float PSUs have performed better than regular float non-PSUs, the analysis said.

The data includes all PSUs in the largest 1,000 listed companies.