Best Penny Stocks India To Buy

What Are Penny Stocks?

Penny Stocks are stocks which trade at very low price and have a low market capitalization.

Typically, penny stocks in India generally trade at Rs 0.05 to Rs 10 per share.

These are ultra micro-cap companies with a market capitalisation of less than Rs. 50 crore.

Advantages of investing in penny stocks

Penny stocks are generally not known to the investing public at large. Regular investors do not invest in such stocks because of a fear that the fundamentals are not known. Institutional investors also stay away from such stocks because of the low market capitalisation.

However, this is where the advantage arises to an investor who is prepared to do proper homework into the fundamentals of the penny stock.

If the investor is able to find a penny stock with good fundamentals and is able to buy the stock at extremely low valuations, he can make an enormous fortune.

Risks and Disadvantages

The first risk of investing in penny stocks is that their fundamentals are not very well. The investor has no access to proper research reports. Even the credibility of audited accounts can be called in question.

The second risk is that they have an extremely low volume of shares traded. This means them an easy target for unscrupulous operators to manipulate the price of the stock by cornering a large quantity of the stock and sending the price to soar or dumping a large quantity and sending the price plunging.

Risk of Stock Exchange restrictions

Because these are generally ultra small companies, their compliance with the law and the stock market regulations may be casual. This may attract adverse regulatory action from the stock exchanges which may culminate in suspension of the scrip from trading.

The other risk is that the Stock Exchanges (BSE & NSE) imposing upper and lower circuits on the companies to prevent excessive speculation in them

The imposition of a UC or LC on the stock can adversely impact the ability of the trader to exit the stock when he wants to.

Penny Stocks which have been delisted by SEBI

SEBI has passed an order by which it has ordered that nearly 2000 companies which includes a number of penny stocks be delisted from the BSE and NSE for non-compliance of the requirements of the stock exchange and SEBI.

Multibagger penny stocks which have created wealth for investors

if investors are lucky and are able to find the proper stock, these stocks can become multibaggers and investors can make enormous wealth.

Some penny stocks like Gayatri Sugars, netvista Ventures Ltd, KM Sugar Mills Ltd, Sybly Industries Ltd etc have given more than 300 stocks.

Upto 33 penny stocks have given a return ranging from 100% to 300%.

Best penny stocks to buy

These stocks have been recommended for investment by well known and respected stock market experts.

Dark Horse stocks

Others Worthy Of Consideration

Stocks Quoting below 10

Penny Stocks quoting below Rs. 10 are the most promising candidates for multibagger gains.

Some of these stocks have good fundamentals as well and have the potential to give hefty gains to investors.

It is notable that there are well known stocks in the list such as Indian Overseas Bank, Idea Vodafone, Trident, Alok Industries etc.

We have to keep a lookout for the best penny stocks to buy now. If you have any ideas use the comment form below to indicate your best penny stock.

Rules For Investing In Penny Stocks

Investors desiring to invest in such stocks must do so with the following rules in mind. These rules will ensure that even in the worst case scenario, the investor will not be badly affected:

(i) Invest only petty amounts:

Ensure that only a small amount of the portfolio is invested in such stocks, not exceeding 10% of the portfolio.

(ii) Diversify widely and have a basket of penny stocks:

It is always sensible to treat penny stocks as a basket and spread the investment and risk across four or five stocks.

However, the downside of this strategy is that even if one or two the stocks become big winners, the impact on the portfolio will be reduced because of the other stocks in the portfolio.

(iii) Monitor the performance regularly:

Penny stocks are not buy and forget stocks. By their very nature, they require to be watched carefully. At the slightest sign of trouble with regard to the fundamentals, the investor must be prepared to sell his stocks.

(iv) Be suspicious of research reports which paint a rosy picture:

Penny stocks are the favourite hunting ground of operators and manipulators. They try to lure in naïve investors by projecting an unrealistic and rosy picture of the the stock. Then, when the naïve investors have bought the stock, the operators dump the stock leaving the investor high and dry.

(v) Keep a strict loss:

Unlike stocks with good fundamentals where a weakness or dip in stock prices provides Investors an opportunity to average the stock price, penny stocks should be subject to a strict stop loss. A dip in the stock price is usually a sign that the fundamentals of the stock are deteriorating. Trying to average such stocks can lead to further losses for the investor.