what are penny stocks ?

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With the increasing income of people in the Indian economy, fast Internet connectivity is increasing the sheep 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 taking high risk and investing money in small priced stocks i.e. penny stocks. 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?.

What are Penny Stocks?

The word “Penny” means coin which means that things of lesser value can be bought. On this basis this name has been named, which means those Small & Micro Cap companies whose stock price is very low and which can be bought with small amount, such shares are called Penny Stocks.

Actually, it has no Clear Definition, but in the US, any stock that is below $ 5 is considered a penny stock. Whereas in India, stocks below ₹ 50 are included in this category and they are found at the lowest position in NSE & BSE or other small stock exchange.

Why are Penny Stocks so Popular?

There are many reasons due to which penny stocks are quite popular in India and in many places they are also known as Multibagger.

1.small amount can make more profit

Due to low liquidity and low market cap of the company, the volatility in the stock is very high. Due to which investors investing in these types of stocks can make huge losses or earn huge profits in a very short time.

2.are beneficial for small companies

Big investors are found to invest in big companies, but these types of stocks contribute a lot to small companies in raising public funding and expanding their business.

3.More Possibilities Because of the Lower Price

Due to the low price, the chances of the price going up are also very high. Many times these penny stocks have also proved to be multibagger where their price has increased 2 to 5 times.

4.There are too many risks and rewards

These penny stocks cannot be trusted as compared to any other popular stocks. 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.These are easy to find

There are about 2200+ stocks in the stock market whose price is below Rs 50 and are considered penny stocks. You can easily find them by going to Screener.

Top 10 penny stocks in india

Given below is a list of Top Penny Stocks in India, whose performance you can get an idea of.

Company Sector Market Cap (CR.)
DISH TV INDIA Broadcasting and Cable Tv 1897
GMR INFRASTRUCTURE Airport Service 15090
HFCL Cable Network 3391
VODAFONE IDEA LTD. Telecom Service 28735
INDIAN OVERSEAS BANK Banking 27861
NBCC LTD. Construction and Development 8631
RAIL VIKAS NIGAM Construction 6182
TV18 LTD Broadcasting 5006
TRIDENT LTD. Textile 7236
NHPC LTD. Electronic transmission 24761

Note – The above list is for education purpose only. We do not recommend anyone to invest in penny stocks.

Difference between Penny Stocks and Blue Chip?

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

Whereas Blue Chip Stocks are very reliable, popular, high market cap companies which are strong at the financial level. It is the sector and market leaders who survive 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 I invest in penny stocks?

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

But still there are many companies whose Future Growth Possibility remains high but their share price is running less than the actual price. In such a situation, the investment made in those penny stocks can be considered a very profitable deal.

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

To answer this, keep the following things in mind

1.Share Price and Valuation

To know the 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 the company with lower stock price, it has more chances of earning profits.

2.Keep in mind the market cap

Instead of choosing the shares of Small Cap companies, you can also select such Penny Stocks which are Mid Cap, because there are more chances of getting good returns in such a situation.

3. Avoid the Bubble Burst

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

4. View Financial Data

Most importantly, before investing money, you must check the balance sheet of the company and compare how that company is performing in comparison to other companies of its kind, as well as what kind of returns have been given in the last years.

How to Invest in Penny Stocks?

  • Firstly you need to have a demat and trading account.
  • Which you can open in India’s top broker Zerodha.
  • After that you have to download Kite App and log in.
  • After which you can make your investment on your selected stock.
  • To buy a share, first search the stock, then click on it and enter your quantity and place the order.
  • After which the shares will be credited in your account in a few days.

Note – You can also create SIP for this and start investing in your Monthly Budget.

Summary

In this way, we have known what are Penny Stocks and due to what types of features they are given more priority by Retail Investors. We hope this post has helped you to understand Penny Stocks and the companies that outstand these stocks.

To know more or to ask any question from us, please comment.


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