There are various success stories online about penny stocks that have skyrocketed over the years and have brought 100x or even 1000x returns to their investors. Many investors do not prefer penny stocks as the risk involved is very high, and there is a very low chance that these stocks will even survive over time. In India, penny stocks are not as popular as in the US. Many penny stocks in India have very low liquidity, cash flows, and balance sheets don’t look good. It’s challenging to select a penny stock with good financial basics in India.
What is Penny Stocks?
Penny stocks are the shares or market list stocks where are undervalued are of very low price. Penny stocks are stocks that are usually associated with low market capitalization companies. However, some big companies with challenging business scenarios will also fall in the penny stocks category, like Vodafone idea share, Yes Bank shares, etc. Selecting penny stocks is a very bad choice as the risks overlay the advantages, and especially if you are a first-time investor, it’s advisable to avoid these and consider large-cap stock or mutual funds.
How to select good Penny stocks in India?
This is a very important aspect if you are planning to invest in a penny stock; how do we know which penny stocks will turn into a multibagger or which penny stocks will even survive over a period of time and not close down. Below are some essential financial basics which we need to select before selecting penny stocks.
- SALES Report: Check out the penny stock’s sales report if their sales reports improve quarter by quarter or if their sales are declining.
- CAGR: Check for their compound annual growth report; this usually is available with all the brokers. It helps us understand the company’s growth yearly.
- DEBT: Check for the company’s debt and see if the debt is increasing or decreasing over the years. If the debt is rising, avoid this stock.
- LIQUIDITY: Check for stocks that have good liquidity to square off your positions when required.
- VALUE: Check for the product/sector/services that the company is offering and analyze if their demand will increase or decrease over the period.
- Technical Factors: Check for technical factors like RSI, Moving average, 52 weeks high/low, 50 days, and 100-day DMA.
Is it risky to invest in Penny Stocks?
Yes, it’s very risky to invest in penny stocks in India; many of these have come into the category of penny stocks for a reason. Many of the penny stock’s value will decrease to zero over time, and they get delisted from NSE and BSE stock exchanges. If you are planning to invest in penny stocks, start with a small amount, monitor the stock for some time if you see positive signals coming from them, then slowly increase the quantity. Most of the bluechip companies were penny stock once, so suggest investing in penny stocks only if you have a high tolerance of risk and you can wait for a more extended period, say 8 – 10 years. If you are new to the stock market, avoid this for the time being.
Some Examples of Successful Penny Stocks.
Here are some examples of penny stocks that have given excellent returns to their investors and have become multibagger stocks.
Eicher Motors LTD ( NSE: EICHERMOT )
Investment of Rs 1,00,000 in Eicher Motors 2000
|Money Invested||Tenure||Current Value as of Dec 2019|
|Rs 1,00,000||20||Rs 3,77,00,000 ( avg )|
Titan Company Ltd ( NSE: TITAN )
Investment of Rs 1,00,000 in Titan in 2000
|Money Invested||Tenure||Current Value as of May 2021|
|Rs 1,00,000||20||Rs 2,00,00,000 ( avg )|
Baj Finance LTD ( BAJFINANCE )
Investment of Rs 1,00,000 in BajFinance in 2002
|Money Invested||Tenure||Current Value as of May 2021|
|Rs 1,00,000||20||Rs 9,50,00,000 ( avg )|
There are few more penny stocks which have grown to become bluechip companies like Kotak Bank, Lupin , Page Industries, MRF, Asian Paints etc.
Will you become a Millionaire by investing in Penny Stocks?
The probability of investing in a penny stock and becoming a millionaire is very low because of many factors, as explained above; they are low in liquidity, their CAGR value is low, high debt, low sales figures, and troubled balance sheets. But if you can spend time and analyze these penny stocks, select a few of them with an excellent tailwind to grow, watch them for some time and then invest, you can expect superior returns 100x, 1000x, or even more. As I mentioned earlier, you need to have a high-risk tolerance; only then can you venture into penny stocks else invest in equity and mutual funds with a financial advisor’s help.
Top 10 Penny Stocks to Invest in India in 2021
|Company Name||NSE Symbol||CMP ( May10/2021)||Sector|
|VODAFONE IDEA LTD||IDEA||Rs 8.25||Telecom|
|YES BANK LTD||YESBANK||Rs 13.15||Banking|
|TRIDENT LTD||TRIDENT||Rs 16.75||Textiles|
|ALOK INDUSTRIES LTD||ALOKINDS||Rs 18.90||Textiles|
|NBCC LTD||NBCC||Rs 47.90||Construction and Engineering|
|BHARAT HEAVY ELECTRICAL LTD||BHEL||Rs 66.45||Construction and Engineering|
|IDFC LTD||IDFC||Rs 54.05||Financials|
|UJJIVAN SMALL FINANCE BANK LTD||UJJIVANSFB||Rs 24.05||Banking|
|INDIAN RAILWAY FINANCE CORP LTD||IRFC||Rs 22.60||Railways|
|RELIANCE POWER LTD||RPOWER||Rs 6.65||Energy|
Note: In above selected list, we have added companies which are trading less that Rs 100 as of now, so these are kind of high tier penny stocks.
Penny stocks look very attractive from far, but when we dig deeper into their data, we will get to know them. There are many penny stocks on NSE/BSE; identifying and investing in the right stock will give your excellent results. There is a slim chance of penny stocks growing into blue-chip stocks and making you a millionaire. So be wise and trade wise; there are plenty of good stocks out there, giving you decent returns. And if you are new to the stock market, initially do paper trading and buy quality stocks try and avoid penny stocks.
Disclaimer: All the information shared on this post is for educational purposes only, pls consult your financial advisor before investing in the stock market.