Graded Surveillance Measure (GSM) — Deep Dive
The Graded Surveillance Measure (GSM) is a SEBI-mandated surveillance framework applied by NSE and BSE to stocks with weak fundamentals or abnormal price movements, restricting their trading to a weekly trade-for-trade settlement and progressively increasing collateral requirements as the stock remains on the list.
The GSM framework was introduced by SEBI in March 2017 to protect retail investors from stocks that exhibit the hallmarks of manipulation or speculative frenzy—rapid price appreciation disconnected from underlying business fundamentals. The two exchanges implement GSM based on a combined screening of market capitalisation, revenue, earnings, book value, and price movement triggers.
Stocks are placed on the GSM list in stages from Stage I to Stage VI, with each successive stage imposing tighter restrictions. At Stage I, trading moves to a weekly settlement (every Thursday), meaning an investor who buys a GSM stock on Tuesday will receive delivery on Thursday rather than the standard T+1 timeline. At higher stages, an additional price band tightens to 5%, and crucially, a cash margin requirement is imposed on the buyer—meaning buyers must deposit an Additional Surveillance Deposit (ASD) of 100% of the trade value with the exchange. This ASD earns no return and is locked in for a specified period, making the stock extraordinarily unattractive for speculators.
The criteria that trigger GSM placement are deliberately broad and qualitative. They include: price increase of over 100% in 60 trading sessions without corresponding improvement in fundamentals; market cap exceeding earnings or revenue by extreme multiples; promoter pledge above a high threshold; very low trading volumes combined with disproportionate price rise; or negative net worth. Any two or more triggers in combination can result in GSM placement.
Once a stock is in GSM Stage VI, trading is entirely suspended unless the company provides a satisfactory explanation to the exchanges. Exits from GSM are possible if the company demonstrates improvement in fundamentals across specified parameters over consecutive review periods.
For investors, a stock on the GSM list is not automatically a fraud—some companies have been placed on GSM and later exited following genuine business improvement. However, the framework is a strong regulatory signal that warrants significant additional due diligence before any investment decision. The illiquidity introduced by weekly settlement and the ASD requirement makes it very difficult to exit a GSM stock quickly if the investment thesis deteriorates.