What are Penny Stocks in India? High Risk, Explosive Returns!

By Trader Pit

July 9, 2021


Penny Stocks have been a popular way to invest for the last few years. These are companies that trade in small amounts of money. They are not big names or companies, but the money you invest in these stocks is small. Penny stocks are often looked at as a way to make quick money. They can be risky, but they can also yield great returns.

Penny stocks are a type of stock… which are a type of investment… which are a type of commodity… which are a type of investment strategy… which is a type of investment scheme. To put it simply, Penny Stocks are a type of stock that are thought to have high risk, high return potential, but that are not traded on a regulated stock exchange. Penny stocks are often touted as a way to get rich quick, and there are quite a few stories out there about people who made a fortune by trading penny stocks. But all too often, the stories aren’t true, and the people who made millions of dollars by trading penny stocks went broke.

Full overview of Penny Stock in India: Hello, investors! Penny stocks are favored by beginners. The low market price of these stocks makes them very attractive to new entrants. However, there are some things that an investor should know before investing in penny stocks. In this article we will discuss penny stocks, their pros and cons, and whether or not an investor should buy them. Let’s get started.

What are penny stocks in India?

Penny stocks are stocks that trade at a very low market price, usually with a share price of less than Rs 10 lakh. These shares have a very low market capitalization and usually do not exceed Rs. 500 million.  Moreover, penny stocks in the Indian stock market have low liquidity and are speculative in nature.

Since these stocks are smaller than small-cap companies, they are classified as micro-caps. However, there are a number of penny stocks listed on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India.

Message: If we go back in history, the term penny stocks originated in the American markets.  In the United States, penny stocks were stocks that traded for less than a dollar ($1), meaning the stock was worth a few cents. Nowadays, however, stocks trading below two to five dollars are also considered penny stocks.

Here are some examples of penny stocks in India (Source: Screener):

 

Company Industry Market capitalisation PE TTM ratio Current price ROE 3 years Debt/equity
Aditya Spinners Ltd. Textile – Spinning 10.03 Cr. 4.2311 5.99 rupees 12.11 0.75
Advance Multitech Ltd. Rubber products 1,66 Cr 14.5906 Rs 4.08 lakhs 6.73 0.59
Anupam Finserv Ltd. Financing – NBFC 8.89 Cr. 16.5616 Rs. 8.46 lakhs 6.08 0.58
Ashirvad Capital Ltd. Finance – Investments 11,56 Cr. 24.8069 Rs 2.89 11.63 0
Asian Fertilizer Ltd. Fertilizers 0,91 Cr 1.3112 Rs 1.15 lakh 6.79 0.64
ATV Projects India Ltd. Mechanical engineering – Industrial installations 36.12 Cr. 5.2401 Rs 6.80 8.66 0.35
AVI Polymers Ltd. Trade 1.98 Cr 10.071 4.85 rupees 5.6 0
Baba Arts Ltd. Film production, distribution and entertainment 52,45 Cr. 19.5554 Rs 9.99 5.29 0
Balurgate Technologies Ltd. Logistics 14,56 Cr. 22.1951 Rs 8.00 13.08 0.88
Basant Agro Tech (India) Ltd. Fertilizers 68.15 Cr 8.1278 Rs 7.52 lakh 6.14 0.48
Berwin Investment & Leasing Ltd. Finance – Investments 4.46 Cr 1.56 7.57 rupees 28.28 0.83
Beryl Securities Ltd. Financing – NBFC 2.60 Cr 7.9983 Rs 5.36 lakhs 5.95 0
Capital Trade Links Ltd. Financing – NBFC 25.82 Cr. 24.5419 4.79 rupees 7.01 0.03
Century Extrusions Ltd. Aluminium and aluminium products 42,64 Cr. 67.6825 Rs 5.33 lakhs 8.54 0.85
CES Ltd. BPO/ITeS 29.78 Cr. 3.0272 Rs 8.18 lakhs 12.83 0.02
Chandni Machines Ltd. Retail 2.01 Cr 3.8009 Rs 6.23 lakh 31.45 0.11
Corporate Courier and Cargo Ltd. Postal services 2.38 Cr 16.9714 3.30 rupees 30.96 0.01
Cybermate Infotek Ltd. IT – Software 14.35 Cr. 3.1045 1.45 rupees 15.02 0.05
Ekam Leasing & Finance Company Ltd. Financing – NBFC 2.34 Cr 3.083 Rs 3.90 6.35 0.79
Company International Ltd. Textile 2.54 Cr 3.3513 Rs 8.50 5.36 0.13
Gagan Gases Ltd. Industrial gases and fuels 3.16 Cr 35.1439 Rs 7.00 8.01 0.02
Golconda Aluminum Extrusion Co. Aluminium and aluminium products 1.60 Cr 18.1326 Rs 4.29 lakhs 35.49 0
Gratex Industries Ltd. Paper and paper products 2.73 Cr 29.369 Rs 9.00 5.96 0.05
GSL Securities Ltd. Financing – NBFC 1.43 Cr 38.6486 4.40 rupees 22.08 0
Haria Exports Ltd. Trade 1.28 Cr 3.9448 Rs 1.11 lakh 6.53 0
Intellivate Capital Advisors Ltd. Other 14.41 Cr. 65.201 4.64 rupees 5.81 0
Interactive Financial Services Ltd. IT – Software 2.72 Cr 13.0809 Rs 9.03 lakh 8.52 0
Jai Mata Glass Ltd. Glass 1.90 Cr 3.8076 0.19 rupees 10.4 0
JJ Finance Corporation Ltd. Financing – NBFC 1,68 Cr 14.1237 5.96 rupees 8.32 0
Kabsons Industries Ltd. Industrial gases and fuels 8.40 Cr 8.0534 4.81 rupees 23.2 0
Krishna Capital & Securities Ltd. Financing – NBFC 1.47 Cr 6.831 4.65 rupees 6.57 0
LKP Securities Ltd. Finance – Stockbroker 56,93 Cr. 7.7741 Rs 7.70 11.63 0.4
Modex International Securities Ltd. Finance – Stockbroker 4.43 Cr 7.4295 Rs 3.69 lakhs 5.15 0.46
Moongipa Capital Finance Ltd. Financing – NBFC 0,81 Cr 1.1402 Rs 2.65 lakhs 9.72 0.07
NCC Blue Water Products Ltd. Aquaculture 3.76 Cr 10.7701 4.85 rupees 30.06 0
NHC Foods Ltd. Consumer Goods 9.13 Cr 6.4511 Rs 7.70 5.06 0.94
North Eastern Carrying Corporation Ltd. Logistics 49.80 Cr. 40.7161 Rs 9.92 5.86 0.83
NR International Ltd. Steel and iron products 5.34 Cr 82.1107 Rs 5.00 6.21 0
One Global Service Provider Ltd. Textile 1.28 Cr 4.3351 1.80 rupees 5.58 0.06
Orient Tradelink Ltd. Film production, distribution and entertainment 8.94 Cr. 85.9276 1.63 rupees 5.83 0.23
Peeti Securities Ltd. Trade 2.72 Cr 7.8477 Rs 7.24 lakh 12.51 0
Pervasive Commodities Ltd. Electrical equipment 0,09 Cr 18.2822 Rs 9.60 36.76 0.93
Pioneer Agro Extracts Ltd. Solvent extraction 3.47 Cr 11.5144 Rs 8.00 23.7 0
RTCL Ltd. Construction – Real Estate 5,90 Cr 36.2244 4.92 rupees 11 0.06
Sagar Productions Ltd. Finance – Investments 31.99 Cr. 81.4078 7.97 rupees 13.75 0.01
Sakuma Exports Ltd. Trade 160.67 Cr. 18.2459 Rs 6.85 lakh 12.74 0.02
Salem Erod Investments Ltd. Financing – NBFC 2.17 Cr 9.8499 Rs 1.89 lakh 12.52 0
Sartak Industries Ltd. Varied 6.77 Cr. 1.6676 Rs 9.72 5.03 0.01
Shaila Commercial Merchant Fun Company Ltd. Trade 2.05 Cr 7.0806 Rs 6.32 lakh 22.18 0.05
Shyam Century Ferrous Ltd. Ferrous and silicic dioxide Manganese 146.63 Cr. 20.1365 6.60 rupees 6.67 0.02
Speedage Commercials Ltd. Trade 0,93 Cr 2.6374 Rs 9.50 7.23 0
Sri Krishna Constructions (India) Ltd. Construction – Real Estate 6.88 Cr. 8.5255 6.57 rupees 9.1 0.24
Sugal & Damani Share Brokers Ltd. Finance – Stockbroker 5.43 Cr 2.8463 Rs. 8.68 lakhs 14.94 0
Super Bakers (India) Ltd. Consumer Goods 1.94 Cr 8.9809 Rs 6.42 lakhs 6.24 0
Surana Telecom & Power Ltd. Cable 75,48 Cr. 15.841 Rs 5.56 lakhs 5.18 0.35
Surat Textile Mills Ltd. Textiles – synthetic fibres 100.13 Cr. 19.2712 4.51 rupees 8.12 0
Swasti Vinayaka Art & Heritage Corporation Ltd. Other 17.60 Cr. 27.7603 4.40 rupees 22.07 0.64
Syncom Formulations (India) Ltd. Pharmaceuticals and medicines 306.80 Cr. 15.9723 Rs 3.93 lakh 8.76 0.01
Talwalkars Better Value Fitness Ltd. Other 6.82 Cr. 2.799 2.20 rupees 7.99 0.83
Tirupati Sarjan Ltd. Construction – Real Estate 27.11 Cr. 18.6328 Rs. 8.24 lakhs 6.92 0.66
Umiya Tubes Ltd. Steel and iron products 8.27 Cr. 98.3989 Rs 8.26 lakh 6.68 0.25
Uniply Industries Ltd. Wood and wood products 72.59 Cr. 3.4686 Rs 4.33 lakh 8.04 0.22
Unjha Formulations Ltd. Pharmaceuticals and medicines 4.05 Cr 25.6069 Rs 9.03 lakh 24.65 0
Vigi Finance Ltd. Financing – NBFC 6.43 Cr 90.6338 0.78 rupees 6.41 0.36
Vikas Proppant & Granite Ltd. Chemical Products 179.11 Cr. 30.6428 Rs 3.48 lakhs 11.11 0.29

AGAINST penny stocks in India

Penny stocks have a high potential for shareholder reward. The returns are quite high if you manage to buy good penny stocks. Many penny stocks have proven to be multiple winners for investors.

These actions are capable of explosive movements. There are a number of penny stocks that have made multiples in just a few months. Moreover, due to the low market price of these stocks, investors can buy a large number of penny stocks.

In general, penny stocks are not very well known because retail investors have no information about these stocks and institutional investors do not invest in these companies due to their small market capitalization. So, if you manage to find such a stock before the market does, it can become a huge source of wealth for you.

Also read : How to invest Rs. 10 trillion in India to earn high returns?

CONS of penny stocks in India

The list of disadvantages of penny stocks is too long compared to their advantages. Here are some common disadvantages of buying penny stocks:

  1. High risk: These stocks are quite risky because the percentage of a few penny stocks outperforming the market is quite low. Many publicly traded stocks go bankrupt and are no longer in business.
  2. These shares have very low liquidity. Problems occur at both ends of the transaction, i.e. the buy and sell side. If you buy these shares, you may not find a seller. If you have bought a stock and its price begins to fall, you may not find a buyer to sell it.
  3. There is a significant gap between supply and demand for these actions.
  4. Little information about the company is available to the public.
  5. Price manipulation: There are a number of cases of price manipulation in penny stocks, where insiders try to drive up the stock price. It is also easy to manipulate penny stocks by buying them in bulk.
  6. Sudden delisting and regulatory review : There are many cases of penny stocks being delisted. Moreover, these actions are regularly reviewed by the SEBI.
  7. Vulnerable to fraud : There are some old scams related to penny stocks (e.g. pump and dump).

Related Posts: Market Capitalization Fundamentals : Large, medium and small enterprises

Who should buy penny stocks?

Penny stocks are suitable for investors who are willing to take a big risk in the hope of high returns. If you are inclined to take little risk, it is better not to invest in these stocks.

 

Short note
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Rules for investing in penny stocks in India

Here are some recommendations that can help you invest in penny stocks.

  1. Look for value, not just price: Even with penny stocks, you should pay attention to the value the company offers. Understand the company’s activities, products, services, etc. Investing in penny stocks is not a lottery ticket.
  2. Reviewing the fundamentals of the businessLook at the company’s finances, management, debts, growth rate, etc.
  3. Liquidity test: Buy stocks with sufficient trading volume to ensure adequate liquidity.
  4. Participation rights and effects of the promoterInvestigate the promoter’s ownership structure and any equity interests.
  5. Technical factors : If you are familiar with technical analysis, check out the technical performance of the penny stock. If you are buying penny stocks to make a quick profit, don’t ignore factors like momentum, technical indicators like moving averages, RSI, etc.
  6. Invest only a small portion of your investments in penny stocks: Since these stocks are high risk, you should only invest a small amount in penny stocks, less than 10% of your total investment.
  7. Continuous monitoring: Penny stocks are very volatile. These actions are known to be explosive and should be monitored at all times. If the stock is doing well, buy more. If they consistently underperform, get rid of them.
  8. Do not diversify: Since you are only investing a small amount in these stocks, diversification makes the net investment even smaller. Pick just 2 or 3 penny stocks and invest them.
  9. Being disciplined: Don’t invest everything if the stocks are going to do well. Also, don’t give up if one or two of your penny stocks don’t produce satisfactory returns.
  10. Don’t believe the myth that you can’t go lower. When stock prices fall, try to find the reason.

Supplement

Although a number of people have made huge fortunes investing in penny stocks, for many these stocks are destroying their wealth. If you want to invest in penny stocks, do careful research and don’t speculate on stocks. Moreover, these actions involve high risks. So we need to be prepared for that.

Finally, here is a short video that briefly explains what penny stocks in India are and how to research and analyze them.

Also read : How to invest in the stock market? A guide for beginners

That’s it for now, as far as penny stocks go. I hope this article has been helpful to you. If you have any doubts/questions, feel free to leave a comment below. I’d like to help you. Have fun investing and trading. Take care of yourself!

Hello, my name is Kritesh (Tweet me here), I am a certified fundamental equity analyst with NSE and an electrical engineer (NIT Warangal) by profession. I am passionate about stocks and have spent the last four years researching, investing and teaching people how to invest in the stock market. That’s why I like to share my knowledge with you. #HappyInvesting

Frequently Asked Questions

Are penny stocks high risk?

No, penny stocks are not high risk. Penny stocks are stocks that trade for less than $5.00 per share.

Can you get rich off penny stocks?

No. Penny stocks are stocks that trade for less than $5. The term “penny stock” refers to the low price of the stock. You can’t make a lot of money with penny stocks. There are many stories of people who have made a lot of money with penny stocks. However, the reality is that the odds of making a lot of money are very low. What is the difference between a stock and a share? A stock is a company’s ownership in the company. A share is a unit of ownership in a company. A company’s stock is usually traded on a stock exchange. What is a stock exchange? A stock exchange is a place where stocks are bought and sold. What is a stock market? A stock market is a place where stocks are bought and sold. What is a stockbroker? A stockbroker is someone who buys and sells stocks.

Why are penny stocks dangerous?

Penny stocks are risky because they are thinly traded and more volatile. They are also often less liquid, meaning they can be difficult to sell.

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About the author

Trader Pit

A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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