GSM List in India: The Real Stage I to Stage IV Rules

What the GSM Framework Actually Is

The Graded Surveillance Measure (GSM) is a surveillance framework run jointly by the National Stock Exchange (NSE) and BSE under the supervision of the Securities and Exchange Board of India (SEBI). It was introduced in early 2017 to deal with a specific problem: small companies with weak financials whose share prices were being ramped up far beyond anything their business could justify. The word graded is the important part. Instead of a single on or off switch, GSM applies curbs in escalating steps, so a stock that keeps showing risky behaviour moves up the ladder into progressively tighter restrictions.

The point most general explanations get wrong is the actual content of the stages. GSM is not a simple sequence of enhanced monitoring, then price bands, then volume limits, then suspension. The live framework has four stages, and the real tools are a price band combined with trade for trade settlement, an Additional Surveillance Deposit (ASD) that locks up a large slice of the buyer's money, and a shift to weekly periodic call auction trading with a freeze on any upward price move. The rest of this page sets out each stage as the exchanges actually define it, with a worked rupee example.

GSM matters to ordinary traders for a blunt reason. If you buy a GSM Stage II or higher stock, a large part of your money can be impounded for months, and from Stage III the stock only trades once a week. People who buy these names chasing a hot tip on social media are frequently shocked to find they cannot exit when they want to. Knowing the rules before you click buy is the entire value of understanding GSM.

Why GSM Exists and How It Differs From ASM

GSM exists because India has thousands of listed small and micro cap companies, many with tiny free floats and almost no genuine institutional following. A coordinated group can move such a stock 5 percent a day for weeks, draw in retail buyers through tips, and then dump the position. SEBI and the exchanges cannot prove manipulation case by case fast enough, so GSM works the other way. It applies objective fundamental filters, and any stock that is both fundamentally weak and behaving like a pump candidate gets caught in the net automatically.

It is critical not to confuse GSM with the Additional Surveillance Measure (ASM). They look similar from the outside but trigger on different things. GSM is driven by fundamentals reviewed on a quarterly cycle, so it targets companies that are genuinely weak on the books. ASM is driven by price and volume behaviour such as high client concentration, sudden volatility or close to close price swings, and it can be applied or removed within days. A perfectly healthy mid cap can land in ASM after a sharp rally, but it will rarely if ever appear in GSM because its fundamentals are sound.

How a Stock Gets Onto the GSM List

Inclusion is rule based. Each quarter the exchanges run the entire cash market through a set of objective filters and shortlist companies that are both fundamentally weak and trading at a valuation their financials cannot support. A stock generally has to fail several fundamental tests at once before its price behaviour is even examined. This is why GSM catches small obscure names and leaves large quality companies alone.

The fundamental screens the exchanges have historically used include the points below. Exact thresholds are revised over time, so always confirm the current criteria in the latest NSE or BSE GSM circular before relying on them. The broad logic, however, is stable: small size, weak balance sheet, and a valuation that is wildly out of line with earnings.

• Net worth of the company up to a low absolute threshold, indicating a small and financially thin company.
• Net fixed assets up to a low threshold, suggesting little real operating base behind the share price.
• A price to earnings (P/E) multiple far above the benchmark index P/E, often several times the Nifty 50 or Sensex average, flagging a valuation disconnected from earnings.
• Positive net profit or loss tested against a small absolute figure, capturing companies barely making money.
• Market capitalisation below a defined cut off, keeping large liquid names out of scope.
• Combined fundamental weakness rather than a single bad metric, since the filters are applied together.

The Real GSM Stages, Stage I to Stage IV

Here is the part the original version of this page got wrong. The live GSM framework runs across four stages. When the framework first launched it had up to six stages, but the exchanges later consolidated it into the current four stage structure. Each stage carries a defined, published set of curbs. The two recurring tools are the Additional Surveillance Deposit (ASD), an amount collected from the buyer and retained by the exchange for a fixed holding period, and the shift to a periodic call auction, where orders are collected and matched at set times instead of continuously.

Read across the table and the design is obvious. Stage I removes intraday netting by forcing trade for trade settlement, which means every buy must be taken to delivery and paid for in full, killing intraday speculation. Stage II adds the financial sting of a 100 percent Additional Surveillance Deposit, so buying the stock effectively locks up an extra amount equal to your trade value for roughly three months. Stage III collapses trading to a single weekly session run as a call auction and forbids any upward price move, which traps existing holders. Stage IV keeps the weekly auction and deposit and tightens the band further so the price can typically only drift down. The exact percentages and holding periods are set in the governing circular and are revised periodically, so confirm them before trading.

What Trade for Trade and Periodic Call Auction Mean in Practice

Two mechanisms do most of the work in GSM, so it is worth being precise about them. Trade for trade (T2T) settlement means a stock cannot be traded intraday on a net basis. Every purchase results in compulsory delivery, and you must pay the full value and receive the shares. You cannot buy in the morning and square off the same evening for a quick profit. This single rule removes most of the speculative intraday churn that pump operators rely on.

A periodic call auction replaces continuous trading with scheduled auction sessions. Instead of orders matching the instant they cross, the system collects buy and sell orders over a defined window and then matches them all at one equilibrium price. In GSM Stage III and IV this happens just once a week, on Monday. Combined with the no upward price move rule, it means a stock can realistically only be sold at the prevailing level or lower during that weekly window, which is exactly why these stages are treated as exits of last resort.

• Trade for trade: no intraday squaring off, compulsory delivery, full payment required.
• Additional Surveillance Deposit: a large deposit on top of normal margin, impounded by the exchange for a fixed holding period.
• Periodic call auction: orders matched at set times at one price, not continuously.
• Weekly trading from Stage III: a single Monday session, with no upward price move allowed.

A Worked Rupee Example: Buying a Stage II GSM Stock

Numbers make the cost of GSM concrete. The figures below are illustrative and not a recommendation or a forecast. Suppose a small cap, call it Shaktigarh Textiles, sits in GSM Stage II at a price of 40 rupees, and you decide to buy 2,000 shares. Your basic trade value is 40 multiplied by 2,000, which is 80,000 rupees. Because the stock is in trade for trade, this is a delivery buy and you must pay the full 80,000, there is no intraday leverage.

Now add the 100 percent Additional Surveillance Deposit that Stage II carries. On a trade value of 80,000 rupees, the ASD is another 80,000 rupees, collected by the exchange and held for roughly three months. So to take an 80,000 rupee position you must actually fund 160,000 rupees, and half of that, the 80,000 ASD, sits frozen and earns you nothing while it is impounded. That is the financial brake GSM applies, and it is far more punishing than a normal margin requirement.

On the delivery transaction itself you also pay the usual charges. Securities Transaction Tax (STT) on a delivery equity buy is 0.1 percent, which on 80,000 rupees is 80 rupees, and another 0.1 percent, again 80 rupees, when you eventually sell. Add exchange transaction charges, GST on brokerage and charges, SEBI turnover fees and stamp duty on the buy, and your round trip costs are higher than for a liquid large cap, partly because thin GSM names also carry wide bid ask spreads. The table below lays out the buy side cash flow.

The trap is what happens next. If the stock then moves to Stage III, it stops trading continuously and only opens once a week with no upward price move allowed. Your 80,000 rupee position can now realistically only be sold flat or lower in a weekly auction, while 80,000 rupees of ASD remains locked. A position that looked like a cheap punt at 40 rupees has become 160,000 rupees of capital you cannot freely move. This is the practical reason experienced traders simply avoid GSM names rather than try to trade them cleverly.

Tax Treatment When You Do Trade or Hold GSM Stocks

GSM changes how a stock trades, not how it is taxed. The normal Indian equity rules still apply. Because GSM stocks settle as compulsory delivery, you cannot run them as intraday positions, so the question is usually whether your gain is short term or long term capital gains. If you hold the shares for 12 months or less, the profit is short term capital gains taxed at 20 percent plus applicable cess. If you hold for more than 12 months, it is long term capital gains taxed at 12.5 percent on the amount above the 1.25 lakh rupee annual exemption, again plus cess.

If you trade equities as a business, profits can instead be assessed as business income taxed at your slab rate, the same basis on which Futures and Options profits are taxed. Which treatment applies depends on your facts, frequency and intent, so this is a point to confirm with a qualified chartered accountant. Either way, the heavy cash drag of a Stage II Additional Surveillance Deposit is a funding cost, not a deductible tax, and it does not reduce your taxable gain.

How to Check the GSM Status of a Stock

GSM lists are published and updated by the exchanges, and your broker will usually flag a GSM stock at the order entry stage with a warning. Never rely on a tip or a screenshot. The authoritative source is the exchange itself. Before placing any order in an unfamiliar small cap, take thirty seconds to confirm whether it is in GSM and, if so, which stage, because the stage decides whether you can exit at all.

• Check the official GSM list on the NSE and BSE surveillance pages, which name each stock and its current stage.
• Read the order entry warning your broker shows for surveillance stocks, and note the stage it states.
• Confirm the price band and whether the stock is in trade for trade, since that tells you if intraday exit is even possible.
• Check whether an Additional Surveillance Deposit applies, because that decides how much extra cash gets impounded.
• If the stock is Stage III or IV, assume you can only sell in a weekly Monday auction with no upward price move.

Practical Rules for Dealing With GSM Stocks

The honest professional view is that GSM stocks are something to avoid rather than to master. The framework exists precisely because these names attract manipulation, and the curbs are designed to make speculation painful. If a stock is already deep in GSM, the restrictions that protect the wider market also lock you in personally. That asymmetry, easy to enter and hard to exit, is the heart of the danger.

If you still choose to deal with such a stock, size the position as money you can afford to have frozen, not as a tradeable punt. Remember that the Additional Surveillance Deposit is real cash locked for months, that trade for trade kills any intraday plan, and that a move to Stage III can strand you in a weekly auction. Most disciplined traders simply keep a personal rule to never buy a stock once it is in GSM, and to exit immediately if a holding gets flagged.

• Treat GSM as a warning to stay out, not a puzzle to solve.
• Never average down a GSM stock, since each stage up tightens the exit further.
• Account for the Additional Surveillance Deposit as locked capital when sizing any position.
• Assume the bid ask spread will be wide and slippage high on exit.
• If a stock you hold enters Stage III or IV, plan around the weekly Monday auction and the no upward price move rule.

Sources and Further Reading

Exact thresholds, deposit percentages, holding periods and price bands are set in the governing circulars and are revised from time to time. For the current, authoritative position always refer to SEBI, the NSE surveillance section and BSE. Confirm a stock's live GSM stage on the official source before you trade, since both the rules and the list change.

Sources and Further Reading

For authoritative data and further reading on this topic, refer to SEBI (Securities and Exchange Board of India), NSE India and BSE India. Always confirm current rules, rates and contract specifications on the official source before you trade.