Penny stocks, which are often considered risky bets, delivered a robust return to investors amid the ongoing rally on Dalal Street. At the time when the benchmark equity index BSE Sensex has gained nearly 11% year-to-date (YTD), select low-valued stocks rallied up to 1,200% since the beginning of the ongoing calendar year.
With a rally of 1,167% YTD, Gita Renewables Energy emerged as the top gainers in the list. Shares of the company have jumped to Rs 84.95 on July 5, 2021 from Rs 6.70 on December 31. Stocks that were available under Rs 10 at the end of last year are considered for the article.
Chitradurga Spintex (up 853%), Nyssa Corporation (up 669%), RattanIndia Enterprises (up 660%), Sreechem Resins (up 648%), Tata Teleservices (Maharashtra) (up 559%) and Cranes Software International (up 531%) stood among other major gainers in the list. These stocks were available in the range of between Rs 0.50-Rs 8 as of December 31, 2020.
Market analysts believe that conservative investors should avoid penny stocks as they are highly risky in nature. However, if you want to buy penny stocks you should first check that debt and working capital stress should not be huge enough which may lead to the necessary death of those stocks from the exchanges.
Investors can also eliminate stocks based on parameters like debt being multiple of annual sales and also receivables and inventories together being more than annual sales, low promoter’s stake and accumulated losses in multiple of annual sales, among others.
Sharad Kohli, Founder and Chairman, KCC Group which is engaged in multidisciplinary advisory services said, “Investors get tempted by low value or penny stocks but they can block your money. One should understand that penny stocks are risky and volatile in nature. They are penny because of a reason. Poor business and management might trigger a sharp fall in the share price. However, there are some penny stocks which have growth potential and can turn around.”
The BSE Midcap and Smallcap indices have advanced 26% and 42%, respectively, YTD. However, other low-valued stocks including Diligent Media, Dharani Sugars, Mahaveer Infoway, Mid India Industries, PMC Fincorp, Source Industries, SC Agrotech, GTL, Simbhaoli Sugars and Kome-On Communications have also gained between 380%-490% since January 1.
Overall, market sentiment stood upbeat in 2021 so far due to robust financial results in March quarters coupled with strong inflows by foreign institutional investors and liquidity measures taken by the RBI and government. Going ahead, brokerage ICICI Direct projected that Nifty may scale 17,500 and Sensex may hit 58,300 due to robust domestic macroeconomics. “With the peak of the Covid resurgence behind us, increasing pace of vaccination domestically and calibrated state-specific unlocking underway, we expect economic activity to bounce back sharply in the remaining nine months of the financial year 2021-22,” the brokerage firm said in a report.
