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Which penny stocks are worth investing in India?

02 Jul

eware of penny stocks. They can make money for you, but if it goes wrong they will only be of 6–9% of your investment. suppose if you took buy position in penny stocks like tuni textile, Trinity trade link 8–10 months ago your Investment of 1000 rs is only of 100 rs in today’s date. But penny stocks can give you good returns like

Morepen labs from 2 to 25 in 2015
Marksans Pharma from 3 to 100 in three years
Indosolar from 1.50 to 15 in 2014
Prakash Constrowell from 2 to 20 in 2016 (well this is new in the list currently in uptreans)
Now come to penny stocks you can buy

3i Infotech now trading at 5.70 for target of 13–16 in 7–9 months
Sybly Industries now trading at 12.50 for target of 20 in 4–5 months.
A large part of my working life was spent at one of India’s biggest brokerage houses in a very senior position. I have also interacted with a large number of insiders from the industry and i know one thing.

Almost no one makes money on trading in penny stocks. You could have beginners luck or a favourable market momentum which might make you some money for a short period or even extended period of time but believe me when the tide turns almost everyone not only lose their profits but also their shirts and pants.

So, please give up the greed. Pick up some good books on value investing if you are really interested in stocks and shares. Get some discipline going into your investment strategy and keep it that way.
To strip your question down to the basics, here is what you are asking: “How can I spend less than INR 60 per stock and get rich!”

Before I get to the answer, let’s assume a few things:

By potential, you mean stocks that have the ability in the future to give decent returns.
By now, you are referring to those stocks that have bottomed out and on the verge of a reversal.
Keeping the above in mind,here’s how you determine the relevant stocks

Make a list of all stocks trading in Both the exchanges currently below INR 60
visit Stock Screener for Indian Stocks: Screener.in
enter the name of the company
Check the trend line for the past 5 years
Look hard at the pros and cons listed
remember that trading in penny stocks is risky and you might loose all capital invested with one bad decision.
here are near to 1000 penny stocks in India listed on BSE mostly but only a few on NSE and only a few are traded on the exchanges as of today. It is important to clarify the meaning of penny stocks.

List of all stocks under Rs. 1 as of Oct 3 2016: Stocks under Rs 1

List of all stocks under Rs. 10 but above Rs. 1 as of Oct 3 2016: Stocks between Rs 1 & 10
Penny stocks are shares of companies that have market capitalization less than Rs.100 crore and each share trading below Rs.10. There are more than 25% of total stocks listed as penny stocks on the BSE and 10% on the NSE. There were over 670 stocks in the Bombay Stock Exchange (BSE) that were trading below Rs 10 on Feb 16. Unitech, Zylog Systems, Velan Hotels, 3I Infotech and Vardhaman Laboratories are some of the stocks, which were trading below Rs 10. Stocks such as Dynacons Technologies which were trading at Rs 0.38 two years back, surged 4,097 per cent, to Rs 15.95 till Feb 16, 2016. As on December 31, 2015, promoters holding in the company was at 60.17 per cent.

Normally, all investors think that penny stocks look like a good grab as the downside seems limited. Penny stocks usually belong to companies with low quality management or negative future outlook. These penny stocks suddenly spring to life with huge volumes when there is an announcement or turnaround in the market scenario, sector or stock specific improvement. There are penny stocks and penny sectors – meaning the sector itself is considered as penny stock sector due to various reasons.

First let me show you the penny stocks and then the penny sectors. I am giving a table of some penny stocks which have given more than 100% returns in less than 150 days.

The reason why penny stocks exist or some stocks become penny stocks is because of PPG: people (management), profitability or growth prospects. Any change in either of these three parameters prompts them to start moving higher or lower.

At the same time there are many stocks which have been reduced to penny status or close to 52 week low. This is today’s list for 52 wk lows.
The reason why penny stocks exist or some stocks become penny stocks is because of PPG: people (management), profitability or growth prospects. Any change in either of these three parameters prompts them to start moving higher or lower.

Now coming to penny sectors, a good example of penny sectors was the sugar industry. This industry was not doing well because of the drought situation and low rainfall in 2014 and 2015, which resulted in all time low for these stocks. No one was interested in these stocks at all and look what they have delivered in less than 6 months. Though they all might not be penny stocks, it was called the penny sector.

A stock is usually considered as penny stock when it is traded below 10 Rs or its market cap is less than 100 Cr.

Allow me to answer this question by asking a question.

Why do people want to invest in penny stock?

We see lot of penny stocks out there which are giving multibaggers even in few months of time. So instead of investing in bigger companies I want to invest in these penny stocks to gain more money in short period of time.
Every big companies start as smaller companies. I will choose a very small company (penny) then hold it for 5 years or 10 years. If this is quality company then it will be a multibagger over period of time.
Usually 95% people invest in penny stocks for quick bucks and 5% people invest because they believe in long term story of the company.

You see Facebook, LinkedIn, twitter that are hugely successful but what you don’t see is there there are uncountable number of companies failed while aiming for big.

Pros:
Penny companies can give multibaggers gains in short period of time.
If you are big investor or tips adviser you can manipulate penny stocks in your favour in a easier way.
If you choose a quality penny stock with experienced management and good future potential pat yourself.
Cons:

Under normal scenario risk is much higher than bigger companies
Failure percentage is much higher. Around 90% company fail to reach big state.
These companies can be easily manipulated
These are usually illiquid companies. When stock starts falling or you decide to sell it , you may not able to do so as there would be no buyer.
Few brokers have more charge to deal with penny stocks
Most of the companies furnish less data to public. Sometime they suprass negative information to sebi. This makes it hard to do proper research on those companies.
Usually share holders get lest attention by board of directors.
So is good to invest in penny stocks?

It depends on you. I do invest partly in penny stocks so here are my tips or suggestions.

Research, research and do more research. It is hard to find quality penny stocks. Screen as many penny stocks as possible.
A company can become big only when it is making profit or increasingly moving towards that direction. Study balance sheet, profit loss statement, RONW, ROCE, all profit margin ratios, debt, promoter holdings.
Check it’s graph over last 5 years of time. If it was moving sidewise for initial phase and now started moving up or it gradually moved up over these period of time then its a good sign.
Must understand the business model and future perspective. Visit the official site, gather all information available for share holders and study.
Never allocate a large part of portfolio for these penny stocks.
Finally choose right sector of such companies.
If you want to become rich investing in stock market, you must understand compounding.

Finally an expected multibagger penny for you.

Sharda Plywood[1]

Example:

Someone I know had invested in about 100 penny stocks (1% of his capital in each stock).
3 out of the 100 became multibaggers and he made approximately 10 times his investment.
Some 50 stocks lost 60% of their value.
Some 45–47 stocks lost 80% of their value.
Net result = His portfolio was in a loss.
He was an avid researcher and thought that one could just put his money in different stocks and become rich. Unfortunately it doesn’t work like that. I repeat: Unless you have substantial knowledge of the company and its business operations, stay away.

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Posted by on July 2, 2017 in Uncategorized

 

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