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Penny Stocks

Mahesh Sawale
15 May, 2021
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 Penny Stocks

With the rising income of the people in the Indian economy, Fast Internet Connectivity is increasing the flock in the stock market, and seeing the earnings of one investor, other people are also coming in this field.

While there are some investors who are earning good returns by investing in high-value shares or penny stocks with high risk. But is investing in Penny Stocks a profitable deal for everyone? Today in this post, we will know what are penny stocks and should you invest in them?

Penny Stocks

What are Penny Stocks?

The word "Penny" means coin which means that things of less value can be purchased. This name is named on this basis, which means those Small & Micro Cap companies whose stock is very low price and which can be bought even with a small amount, such shares are called Penny Stocks.

Actually, it does not have any Clear Definition but any stock in the US which is below $ 5 dollars is considered penny stock. Whereas stocks below ₹ 50 in India are included in this category and are found at the lowest rung on the NSE & BSE or other small stock exchanges.

Why are Penny Stocks so popular?

There are many reasons why penny stocks are very popular in India and in many places, where do they even go multi-bagger.

1. small amount can be more profitable
Due to the low liquidity and a low market cap of the company, stock fluctuations are very high. Due to which investors investing in these types of stocks can make big losses in a very short time or can earn a lot of profit.

2. small companies are beneficial
Large investors are found to invest in big companies, but such stocks contribute a lot to small companies to raise public funding and make their business bigger.

3. More possibilities due to lower prices
The chances of going up the price are also very high due to the low price. Many times these penny stocks have also proved to be multi-bagger, where they have also been priced 2 to 5 times.

4. Is too much risky and reward
These penny stocks cannot be compared to any other popular shares. The reason for this is their small market capitalization, low profit, and Week Future Plan which does not tell about the future potential of the company.

5. They are easy to find
There are around 2200+ stocks in the stock market that are priced below Rs 50 and are considered penny stocks. You can find them easily by going to Screener.

Top 10 Penny Stocks 2021

Below is the list of Top Penny Stocks of India, whose performance can give you an idea.

Company Name

Sector

Market Cap (Rs crore)

Returns from January 1,2021 to January 18,2021(percent)

Ashirwad Capital Ltd

Finance

17.24

72.4

Angel Fibers Ltd

Textile

29.63

68.09

Bio Green Papers Ltd

Paper

7.51

67.24

RTCL Ltd

Realty

7.37

66.4

Fortune International Ltd

Trading

11.17

65.31

Trans Freight Containers Ltd

Capital Goods

6.66

64.86

Kush Industries Ltd

Textile

2.53

64.36

Nyssa Corporation Ltd

Trading

4.98

64.36

N2N Technologies Ltd

Finance

2.22

64.35

Visagar Polytex Ltd

Finance

46.54

63.92

[Note - The above list is for the purpose of education only. We do not recommend anyone to invest in penny stocks.]

Difference between Penny Stocks and Blue Chip?

Penny Stocks are issued by a company with a low market cap in the stock market, as well as small and high-risk investors tend to prefer this type of stock more. With such low returns and sometimes high returns, this type of investment also suffers losses, retail investors are mainly interested in buying Penny Stocks.

While Blue Chip Stocks are very reliable, popular, high market cap companies that are strong at the financial level. It is the sector and market leaders who also survive in many big ups and downs and provide very good returns to the investors in the long run. Examples are HDFC Bank, Tata Steel, Reliance, etc.

Should you invest in penny stocks?

In my opinion, a sensible and wealth-creating investor always stays away from such stocks because he believes that choosing the best and financially strong companies is the most important thing for good returns.

But even then there are many companies whose Future Growth Possibility is high but their share price is lower than the actual price. In such a situation, the investment made in those sharp stocks can be considered as a very profitable deal.

But now the question comes, how to select those Penny Stocks.

To answer this, keep the following points in mind.

1. Share price and valuation

To know Valuation, understand this example -

◆ Company A

Total Outstanding Shares: 10000

Per Share Price: 10 Rupees

Market Cap: 10 × 10000 = One Lakh Rupees

◆ Company B

Total Outstanding Share: 1000

Per Share Price: 100 Rupees

Market Cap: 1000 × 100 = One Lakh Rupees

Note - In case of two companies having the same market cap, give more preference to Penny Stocks of a company with a lower stock price, which makes it more likely to make a profit.

2. Take care of market caps

Instead of choosing the stocks of small-cap companies, you can also select such Penny Stocks which are Mid Cap, because there are more chances of getting good returns.

3. Avoid Bubble Burst

Many times companies issuing Penny Stock try to increase their company's investment by spreading false news in the market. Check the veracity behind such news and try to identify the real market value by avoiding bubble bursts.

4. financial data

Before investing money, you must check the balance sheet of the company and compare how the company is performing compared to other companies of its own kind and also what kind of returns have been given in the past years.

How to Invest in Penny Stocks?

  1. Firstly you should have a Demat and trading account.
  2. Which you can open in India's top broker Zerodha.
  3. After that, you have to download Kite App and log in.
  4. After which you can invest in your selected stock.
  5. To buy a stock, first search the stock, then click on it and enter your quantity and place the order.
  6. After which the shares will be credited to your account in a few days.
[Note - You can also create a SIP for this and start investing your Monthly Budget.]

Summary

In Conclusion: In this way, we have to know what Penny Stocks are and what kind of features are given to them by Retail Investors. We hope that this post has helped you understand Penny Stocks and the companies that outstand these stocks.

To know more or to ask any questions from us, please comment.
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4 Comments
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