What are Penny Stocks and Top Penny Stock Picks

The Stock Market provides very good options in terms of wealth creation. Today investing in the stock market is not reserved for the rich class only. One can easily open a DMAT Account and get started. While generally, it is advisable to invest in stocks that have a good reputation and well-established history, if you are looking to achieve your short-term goals in a short period, then investing in penny stocks is a good option. Today many small investors prefer online trading and get attracted towards small price stocks to get high returns.

What are Penny Stocks?

Penny stocks are stocks that are very low priced on the stock market. In terms of the Indian stock market, a stock priced below Rs 10 can be termed a penny stock. While penny stocks can be very lucrative, it is not to be forgotten that they come with a high-risk reward. These stocks have low liquidity and are not traded frequently. Therefore they have high volatility. Second, these many of these stocks have low market capitalization; therefore, investing in these stocks, in the long run, may not be as fruitful as it sounds. Therefore, it is important to strategize your investment plans more carefully in the case of penny stocks. Before dwelling on their advantages and disadvantage, we must look at some of the important features.

Features of Penny Stocks

  • High-Risk High Reward – Many of the penny stocks offer great returns because of their potential to grow. However, they are equally risky because of lower market capitalization. They are the first ones to get wiped out in case of major fluctuations.
  • Prices are very low– Penny stocks are inherently low-scale stocks that are generally priced below Rs10. Therefore, any person who is on a low budget can invest in these stocks in bulk.
  • Very unpredictable pricing – These stocks are not often brought and are not in the limelight for most of the year and thus yield low profits. But during calamities, when people are looking to invest only a small portion of their money for smaller gains, then these stocks can be very profitable.

Advantages of Investing in Penny Stocks

  • They Have a multiplier effect – Many of these small-scale stocks can have a multiplier effect in a very short period, resulting in increased profit margins. Many of these stocks shave the ability to double your initial investment and even make you earn ten times more than your investment amount. It is thus advisable to include some of these stocks in your portfolio.
  • Less risky and inexpensive – The reason why penny stocks are gaining popularity is that they are less expensive as compared to the other stocks. People want more profit but at the same time don’t want to lose a fortune. Secondly, by investing in penny stocks, you are not only growing your money, but at the same time, you have the option to spend on other expensive and reliable stocks.

Disadvantages of Investing in Penny Stocks

  • Low profile less information – The fact that most of the penny stocks are issued by small start-up looking to make some inroads in the market, getting information about their financial health is very difficult. Lack of documents without ascertaining their past performance and still investing is nothing but taking a gamble, especially when it comes to the stock exchange.
  • Great Chances of fraud – Frauds in the stock market is not a new phenomenon—more in the case of penny stocks. Lack of information on these companies creates a higher chance that some of them might be just dumpsters. Initially, they wait to get a huge base, and once the price looms, they dump the Company leading to a loss of millions. Thus, it is always advisable to do adequate research and take baby steps before investing in new penny stocks.

What to be aware of before investing in Penny Stocks?

After getting a decent amount of knowledge on what penny stocks are and their advantages and disadvantages, it is important to mention some of the basic things which an individual must keep in mind before investing in penny stocks. Here are the 6 basic facts one must be aware of, namely:

  1. A small investment is the key to success – Penny stocks do not have huge potential in the beginning, and thus, putting all your eggs in one basket is not a great idea. Ideally, not more than 10 percent of your total investment amount should be put in penny stocks.
  2. Go for quality and not Quantity – The share market is full of damaged goods, especially when it comes to penny stocks. One must invest in quality penny stocks rather than believing in quantity. Two or three max should be the aim.
  3. Keep a strong vigil on your stock’s performance- one should not forget the fact that penny stocks keep changing their position at a much faster rate than established ones. So, once you invest, it is important to keep analyzing its performance and not to sit back and forget about it.
  4. Don’t go with the hype- One of the biggest mistakes people make while investing in stocks is that they go with the flow. If they see stock being hyped about, they put their resources without applying their mind. This is not only a bad strategy but also very dangerous in the long run as you might end up losing a considerable amount from your tank. Thus, one should be fully educated about the stock they are going in with.
  5. Be mentally prepared to suffer losses – Generally, in the case of penny stocks, if the price goes down, people tend to buy more in the hope that they will recover the losses and adjust it later. But that’s not a good option as you might end up digging a bigger hole for yourself. Book losses in the investment, move out of the investment and look for another day to live.
  6. Never be overconfident – When penny stocks start giving you desired results, one gets carried away and thus thinks himself to be a great investor. But it is his overconfidence that is emulating. One must be grounded and always think twice before investing in risky stocks, especially in the case of Penny stocks.

The Best Penny Stocks in India that could be Multibaggers

Recently, the Indian Stock Market has been on the rise, creating a great opportunity for new investors who want to invest for a short period of time. Here are some of the top-performing petty stocks you might be interested in

  1. NHPC LTD– is a government company that deals in hydropower projects. The faith of government coupled up with a tag of mini Ratna makes the Company’s reputation no harm. The stock price ranges from Rs 14 to 34 and yields an average dividend at a 6 percent rate, making it a good pick.
  2. BAJAJ HINDUSTAN SUGAR – This penny stock is one of the most performing stocks with a spectacular return ranging from Rs 6 to 14. The stock price ranges from Rs 14 to 16.40 and is hence a great choice for new investors. However, the stock at one point was trading at Rs 435, which also gives an indication that at one point, it was not a penny stock. But recently, the stock has stabilized and is good to go.
  3. SATLUJ JAL VIIDUAYT NIGAM – The Indian Government undertaking has yielded 19 dividends in the recent year. The current share price of the Company is Rs28.90. The total dividend generated in the whole year is more than 7 percent making it one of the hottest picks of Dalal street.
  4. RAIL VIKAS – It is a subsidiary of the Indian Railways looking after the infrastructure and maintenance of Indian Railways. The stock has issued dividends of around Rs2.20 in the last 12 months, and a total issuance of 3 dividends in the last 2 years has done wonders for the Company. The total dividend in terms of profit in the last one-year amounts to 7 percent.
  5. MANALI PETROCHEMICAL LTD- the Chennai-based company deals in propylene glycol and polyols. These chemicals are widely used in food flavors and other cosmetics. For the last 10 years, the stock has been trading from Rs 6 to 45 and yielding dividends at 1.26 percent annually, making the stock more viable for slow investors who want less risk and good enough profit.
  6. VODAFONE IDEA – Vodafone Idea Limited is a joint venture between the Aditya Birla Group and the Vodafone Group. It is the largest telecom service provider in India. With a Revenue Market Share of around 15.9% of the Indian mobile telecommunications services market, it is India’s third biggest cellular provider by subscribers. The company offers voice and data services across all platforms in India, including 2G, 3G, and 4G.
    Vodafone is losing users to competitors like as Reliance Jio and Airtel, which is a big blow to the company’s revenue. Vodafone may be on speculators’ radars, but it is exceedingly dangerous, and volumes should be properly monitored before purchasing.
  7. MOREPEN LABORATORIES – Morepen Laboratories specialises in pharmaceuticals. It has slowly evolved from a single-product firm to a multi-activity business with a worldwide ambition and happy consumers in more than 50 countries. In India’s northern state of Himachal Pradesh (HP), the firm has three cutting-edge manufacturing facilities.
    The US Food and Medicine Administration (USFDA) inspects and approves the main factory in Parwanoo for the manufacturing of Loratadine, the world’s best-selling anti-allergy drug. It is the world’s largest producer of Loratadine, with over 90% market share of generic Loratadine in the US market, and is a supplier to top-tier customers such as Novartis, Merck, and Pfizer.
  8. HBL POWER SYSTEMS – HBL Power Systems Ltd is a publicly traded Indian firm that has been in operation since 1977 and specialises in engineering goods and services. The company’s business approach was to find technical shortages in India that might be filled by “indigenous initiatives.” Aircraft batteries were the first goods chosen and successfully developed, eventually leading to HBL having the world’s largest variety of specialist batteries.
    With a significant presence in various other nations, the firm has grown to become a prominent provider of specialised batteries and power electronics in India.
    Since the previous ten years, the stock has moved horizontally from Rs 10 to Rs 60, with an average daily volume of 4 lakh shares.
  9. JITF INFRALOGISTICS – The firm has a market capitalization of Rs. 575 crore and has seen a 3073 percent increase in the previous year. While YTD gains of over 1700 percent have also been remarkable. Low liquidity in the market is being blamed for the company’s extravagant price surge. The company’s institutional holdings are also a source of worry, since they come from investors who have lately been scrutinised for their investments in Adani Group companies.
    The firm lost Rs. 0.04 crore in the preceding quarter, which ended in June 2021. From August through October 2021, the company’s stock was trapped in the upper circuit.
    Water, wastewater, and solid waste management, as well as logistics and transportation equipment manufacturing, are all areas where the firm operates.
  10. ANG LIFESCIENCES – In the previous year, the pharmaceutical firm has gained a whopping 2896 percent, with a YTD return of nearly 1812 percent. The company’s stock is down after purchasing two formulation production plants. In addition, the firm announced a bonus in the ratio of 1:1, which is giving the stock a present boost as investors rush to buy stocks with a record date.
    The firm, which was founded in 2008, focuses largely on Dry Powder Injectables (SVP). ANG Lifescience is dedicated to providing high-quality goods and services that improve people’s health and quality of life by addressing illness prevention, diagnosis, and treatment.
  11. 3i INFOTECH – After the company’s debt restructuring plan, the computer software corporation was relisted and has been in great demand ever since. The company’s capital base has been reduced as a result of the new plan. The stock is projected to rise even higher. The corporation has finally paid off all of its debts. The company’s stock has increased by 1,468 percent in the last year.
  12. ORCHID PHARMA – The pharmaceutical business has gained 1890 percent in a year and is currently trading at Rs. 413 per share on the NSE. The stock was relisted in 2020 at a price of Rs. 18 and has returned almost 14000 percent since then until April of current year.
    The key driver of Orchid’s stock price is its limited stock or free float. Orchid Pharma Ltd. (Orchid) is a vertically integrated firm that spans the full pharmaceutical value chain from discovery to delivery, with proven credentials in research, production, and marketing.
    It was founded in 1992 as an export-oriented unit (EOU). Orchid Pharma now has a market capitalization of Rs. 1685 crore. The 52-week high price of the stock is Rs. 2654.
  13. AUTHUM INVESTMENT – Authum Investment & Infrastructure is a registered non-bank financial company that engages in the business of investing in stocks and securities as well as financing.
    After being announced as the successful bidder for the acquisition of Reliance Commercial Finance (RCF) and Reliance Home Finance, the firm has been in the headlines. RCF will fetch roughly Rs 22 billion from Authum, while Reliance Home Finance would fetch around Rs 29 billion.

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