—Updated 28 November 2016—
What is Penny Stocks Investing? What are best penny stocks in India NSE-BSE? Have you just started to invest in the stock market?
You have found some stocks trading at just Rs.5 or 10. What an opportunity? There must be blind people to leave these stocks unnoticed. I will profit from them. It can easily double or triple.
If this is your thought then that is exactly ‘Penny Stocks Investing‘. But is this rational? Let us find out….
I have a friend who bought a lot of Birla Power Solutions and Jupiter Biosciences in 2009. These were really hot penny stocks in late 2008. Let me tell you that he regrets his decision now. They have gone way down.
You buy thinking ‘I bought it at Rs 4 or 6. How much more can it go down?’. Penny stocks can give super-normal returns or super-normal losses(if there is such a term). If the penny stock you bought is not of at least reasonable quality, your money is at risk. Read On..
Best Penny Stocks to buy in India 2016-2017 on NSE-BSE
Are you gung ho about buying top penny stocks? You’ve made up your mind already? While I would certainly advice to invest in top quality stocks, here are a list of top low cost shares to invest in 2016-2017. How did we select them? The criteria we used for choosing best penny stocks was…
- We made sure they’re not companies that vanish overnight. They must have been around a few years
- They may not strictly be penny shares but border around them. Ie., each shares costs less than Rs.25 and market Cap less than 500crores
- Their products/services must be real and visible
- Must have some downside protection in short-term
- Promoter holding must be 40% minimum
By this way we can at least make sure to screen the majority of bad companies (which most penny stocks usually are). Here is the list of top penny shares in India that meet above criteria
|SL.No||Penny Stock Name||Price||Market Cap(in Crores)||P/E Ratio||P/BV||Div Yield(%)|
|1||IL&FS Invest. Mgrs||22.4||720.1||13.1||6.95||5.65|
|2||JVL Agro Industries||16.9||287.1||4.3||0.61||1.17|
|3||NeoCorp International Ltd.||15.4||59.3||3.01||0.23||3.21|
|4||Genus Power Infrastructure||25.3||678.2||11.21||1.22||0.38|
|5||Vijay Shanthi Builders||13.8||36.4||7.85||0.3||5.76|
1) IL& FS Investment Managers – This is a very good company managed by IL&FS group. They are involved in Private Equity business and are the only listed PE firm in India. IL&FS has a strong brand equity. The last value of stock was around Rs.21 . It gives a very good dividend and has no debts. While you cannot expect it to triple or quadruple in next year, it is somewhat a decent stock to buy in at low cost per share.
Update: This penny stock paid Rs 1.3 as dividend ie., 7% of cost price. It is also down by Rs.2. The decent fundamentals are still intact.
2) JVL Agro Industries – It has a Market Cap of around Rs.200 crores and trading at around Rs.15 per share. It has P/E of 4 and book value of Rs.15. JVLis the largest single in-house manufacturer of Vanaspathi Oils. It has a dividend yield of around 1.5%
Update – This penny stock has moved from Rs 16.9 to Rs 20.5. Not great performance but not bad either.
3) NeoCorp International Ltd – Neo Corp is a packaging provider expecially in textile manufacturing. It manufactures under PackTech brand. It has a market cap of around Rs.60 crores and per share costs around Rs.15. The PE ratio is close to 2 and dividend yield is 4%.
Update:The market cap of this penny stock has doubled in last one year after featuring first on our list. It now trades at Rs31.
4) Genus Power Infrastructure – This is one of the leading electricity meters manufacturer in India. Have moderate debt on their books. The stock costs around Rs.21 and the market cap is around Rs.500crore. The PE ratio is around 9 and promoter holds around 50%. Earns around Rs70 crore profit every year. Decent fundamentals.
Update: This penny stock has gone up to Rs 46 now from Rs 21 when we first listed it. More than doubled.
Vijay Shanthi Builders – They are one of the good quality construction companies in South India. Currently have multiple projects in Chennai, Bangalore.This penny stock is trading at Rs.13 with a market capitalization of Rs 40 crores. The PE is around 8.2 and yield is close to 5%. As with realtors, they have some debt of Rs.50 crores and have profit of Rs 4 crores a year. Can expect to go high when tide turns not based on fundamentals but greedy market momentum. Update – Down by 30% as expected from penny stocks. No trigger for upside.
Removed from the list. No improvement in financials.
6) Manali Petrochemicals – The company earns around a quarterly profit of Rs 9 crore and has almost no debt. It has been around for a long time and is currently valued at around Rs 200 crores.They are also regular in their dividend policy and the current dividend yield is around 4.3 %. A good penny stock to bet on for long term with decent fundamentals.
Update- The penny stock has more than doubled from Rs 200 crore to Rs 522 crores.
7) Nitish Estates – Nitish Estates is a leading real estate player in Bangalore . They build luxury apartments and have some good venture funding for their projects. As with many realtors they have some debt and you need to be remindful of that. This penny stock trades around Rs.14 and is a high risk bet.
Update – The stock is up by 10%.
8) Noida Toll Bridge – This is a toll bridge company promoted by IL and FS. Decent promoters. Good fundamentals. They can collect toll till 2031. At decent PE, the earnings growth will be minimal but re-rating can happen when bull market happens but you need patience. Handsome dividend yield. Good penny stock to bet on. Risk is removal of toll privileges but is remote possibility. New addition in 2016 penny stocks list.
Update: Noida Toll Bridge is being removed after decision from Allahabad High Court. The business model is close to dead and no hope unless Supreme Court overturns decision. Lot of uncertainty about this penny stock now. Only suitable for very high risk takers willing to bet on positive SC court decision.
8) Manappuram Finance – This was an awesome penny stock when i first intitiated my position. Still looks a great bet with decent fundamentals. I regret not buying more at Rs 24 when i first bought them. The AUM has been growing for this ex-penny stock. The management expects 20% growth in next 4 years. Demonetization has stunted growth for next two quarters atleast. This low priced almost penny stock can give market beating returns in next 5 years. But please keep vigil on regulatory updates and price of Indian gold. Decent ROE and ROA and big branch network. Among most promising in this list in our opinion. Research more and decide.
9) Lycos Internet – New addition in Mar 2016. This is a Advertising company involved in Ad Media. Certainly the numbers say it is not a penny stock. It has great numbers in last 2 quarters. But the authenticity of numbers of this penny stock must be drilled further.The company has good ROE and ROCE and does not deserve to be a penny stock or trade at PE of 2.5. Again, not sure why market has not looked at this stock. Tread carefully and watch closely. If their numbers are true , when bull markets start there is chance for out-performance.
Check out this website which regularly updates/tips about penny stocks (Disclaimer: As per SEBI guidelines, above stocks are not recommendations but mere analysis of cheap stocks listed.Could be injurious to your wealth if not careful. Do your own analysis before investing and we’re not responsible for any loss arising due to your action. I own only ILFS Investment Manager and Manappuram Finance as small part of opportunistic portfolio).
Update Dec’16: I have exited penny stocks listed above ILFS Investment Managers for better opportunities elsewhere.
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What are Penny Stocks?
Penny stocks are shares of companies that have market capitalization (market capitalization-the total value or worth of the company) less than Rs.100 crore and each share trading below Rs.10. Do you know how many penny stocks trade on BSE or NSE. It’s 25% for the BSE and 10% for the NSE.
They 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.
Related Wikipedia article: Penny Stocks
Why are penny stocks cheap?
Most Penny stocks are cheap for a reason. It is mainly because
- They have a low quality management
- Non-transparent corporate governance
- bad future business potential
- Bad balance sheet and bad profit/loss account
Penny stocks usually seem to belong to dubious promoters. These promoters sell their unworthy financial companies during the peak period. Once they have off loaded their junk, they slowly disappear from the light. The investors then get stuck with the bad investments.
How do penny stocks operate?
Penny stocks usually have a promoter-operator nexus. The promoters usually hire investment bankers (low reputed mostly). These people in turn negotiate a deal with the operators who buy and sell shares anonymously with fake accounts. During boom times, people are ready to buy anything.
These operators carefully create a media frenzy or approach individual investors by mail/phone. They artificially push up prices and then offload these equity shares to investors. The profit is then shared between the promoter and operator.
Investors would have no idea as to what or how much shares were insider traded nor how long stocks were held. How many of you read the News and Announcements from BSE/NSE before buying penny stocks?
Definite Read: How to choose good stocks for long term investment
Risks in Penny Stocks
- You buy a stock thinking it will go up in future. If it has a stealthy management, you do not know its real profits. Will you lend to a friend who lies all the time? It is something similar to that
- There is a chance to lose 100% – The promoters can never return and your stock value goes from Rs4 to Rs 0. Yes it is a 100% loss.
- Your stock may be de-listed – BSE/NSE once a while, delists penny stocks to clear the bourse. Once it is de-listed you do not have chance to sell it.
- The trade volume value is too thin – You do not get a chance to exit as the value of shares traded is not uniform. It is big on some days and then zero on others. You cannot exit when you want.
- Penny stocks are not traded widely. Some may be only delivery-based and not intra-day trading.
- Penny stocks in India are not regulated. Most of them run risk of being delisted by bourses as seen in recent months due to low quality. Liquidity will be an issue for such penny stocks as you can’t sell them. So be careful on which stock you buy.
Pros of penny stocks:
- If identified properly, the rate of return is huge. As high as 200-500%
- Some quality companies , due to temporary hiccups and bad environment end up as penny stocks. Once market and economy turns they bounce back giving super-normal returns.
- They are cheap. So you can buy large quantities.
How to trade penny stocks
If you have decided to get involved in penny stocks, make sure you follow these tips. This will help you avoid the major blunders that penny stock investors make.
- Don’t trade OTC stocks. OTC or Over -the-Counter stocks are not well regulated as regular listed penny stocks
- Do own analysis and discard email/sms which promise you the next million in trade. They make you gullible targets
- Look for momentum in the stock. Learn some basic technical analysis.
- Try not to short penny stocks. They usually lead to losses unless you’re well aware of technical analysis and insider/market information
- Always have your stop losses in place. Don’t invest more than 5%of your total stock portfolio in a penny stock
- Choose high volume stocks. The total quantity of stocks traded each day must atleast be 10-15 times what you plan to buy. There is no use buying a penny stock which you can’t sell.
- Don’t buy penny stocks just because they’re cheap. Look for decent fundamentals atleast. May not be even greta or good but the penny stock should not be fraud or bad which is case most of time.
- Check if the business of the penny stock company is turning around or will turn around. Avoid loss making companies that reported loss for 2 0r more years. Should have visible signs of recovery. Else there is no trigger for the penny stock. Do you know Marksans Pharma, Uniply industries were penny stocks in India once trading at 5rs each. now they trade Rs 100 and Rs 700 respectively.
- Don’t try to average the price of a penny stocks on its way down.
- Don’t have 50 penny stocks. If you invest in penny stocks then better to have less than 5 or 10 so that tracking is easy.
Following the above measures will protect the downside of your investment. If there is a mistake,then you can book a loss without losing 100% capital if you’re alert.
Should you buy penny stocks?
Penny stocks is a high risk-high reward gamble. Yes, it’s a gamble. You are risking your money on a company with questionable management in hope for a profit. If you are ready to take that risk, then go ahead.
If your stocks click, you will have great results. Else your entire capital can be wiped out.
I, on the other hand, would not risk that. Remember the two Rules of Investing from Warren Buffet. Rule 1 – Never lose your capital. Rule 2 – Never forget Rule 1. Because once money is lost in the market on bad companies, you seldom get it back.Invest in quality companies which can stand the test of time.
My personal advise: Unless you know all about penny stocks and are experienced, don’t buy them.
High cost per share companies with good returns
Do you think companies which have high cost per share are too high? For eg., a share of MRF trades around a whopping Rs.21,000. One share of Bosch costs Rs.10,750. Don’t these sound costly? Aren’t you better off buying 100’s of shares for Rs.10 instead.
Wait. I’m not suggesting you to buy it now ( as a personal opinion I think it’s fairly or over priced now). What I’m saying is buy quality rather than quantity.
In the last 5 years there stocks have given more than 20% compounded return every year which is great.
Further, you do not want to place your money in questionable management’s hand. Ultimately the decision is yours and the results that come with it.
The temptation to invest in penny stocks and earning 10x returns is no easy feat. With abnormal returns from penny stocks, come abnormal risks.
I per se don’t invest in penny stocks just because stock price is cheap. Only if the stock offers value I buy it and don’t care if it is penny stock or blue chip. I advise the same for you too. Look at value and not at price.
Update Mar2016: The price of Page Industries has gone as high as Rs 14,000 and MRF to Rs 34,000. These are decent returns compared to penny stocks. So again proves the point that quality stocks also give good returns not just penny stocks.
One such similar non-penny stock is Eicher Motors which has grown 12 times+ in last 5 years. It is not a penny stock. The per share cost is around Rs 24000. It was Rd 2000 last 5 years back. Shows how business is more important than being penny stock for multibagger returns.
Conclusion : It is up to you to choose if you buy penny stocks. But if you are a conservative investor who does not like to lose money, penny stock may not be ideal for you. It is a high risk-high reward game.
Think diligently and do your own analysis before investing in penny stocks. Happy investing!
Definite Read: Investing lessons from Warren Buffett’s life
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