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Over 600 stocks trading below Rs 10; should you invest?

Unitech, Zylog Systems, Velan Hotels, 3I Infotech and Vardhaman Laboratories are some of the stocks, which are trading below Rs 10.

Stocks that remained in focus today
Infosys stocks ended 8.81 per cent down at Rs 1072.25 after IT major's lower-than-expected first quarter results disappointed investors.

Suraj Dutt, 32, a Delhi-based seviceman wants to invest Rs 5,000 in equities in the ongoing bear phase. He is looking to buy good quantity of stocks which are trading below Rs 10 and can give good return in next few years. Market experts usually identify these type of stocks as ‘Penny Stocks’.

Nikhil Kamath, co-founder and director, Zerodha said stocks that are trading at Rs 10 and lower can be identified as penny stocks.

The are over 670 stocks in the Bombay Stock Exchange (BSE) that were trading below Rs 10 on February 16. Unitech, Zylog Systems, Velan Hotels, 3I Infotech and Vardhaman Laboratories are some of the stocks, which are trading below Rs 10.

If you are also planning to invest in penny stocks like Dutt, then experts have a sugestion. One should always consider the quality of the management and the macro financials of the company.

In the past one year, penny stocks have given mixed set of returns. The data show that there are chances to get positive return from penny stocks even in a volatile market conitions. Stocks such as Dynacons Technologies which were trading at Rs 0.38 two years back, surged 4,097 per cent, to Rs 15.95 till Feb 16, 2016. As on December 31, 2015, promoters holding in the company was at 60.17 per cent, however public held 39.83 per cent stake in the company.

Similarly, share price of Cambridge Technologies jumped 3,506.06 per cent to 119 on Feb 16, 2016 from Rs 3.30 on Feb 17, 2014. CMI Ltd shares surged 3,385.69 per cent to Rs 340.90 on Feb 16, 2016 from Rs 9.78 on Feb 17, 2014.

On the other hand, shares of Indian Infotech & Software which were trading at Rs 9.85 on February 17, 2014 fell to Rs 0.25 on Feb 16, 2016. Others such as Shalimar Production, VHCL Industries, Rei Agro, and Winsome Diamonds and Jewellery declined 94.26 per cent, 90.84 per cent, 90.36 per cent and 87.21 per cent, respectively, in the past two years.

G Chokkalingam, founder and chief executive, Equinomics Research and Advisory elaborated more on the penny stocks. He said, “There is no theoretical definition of penny stocks – practically, very low promoters stakes (say less than 25 per cent), huge debt and accumulated losses, stock price in single digit, poor dividend track record, etc are the typical characteristics of penny stocks. Honestly it is difficult to identify penny stocks for me.”

According to market experts, conservative investors should avoid such penny stocks. Only speculative traders could enter such stocks as there are many examples of many stocks getting suspended from the exchanges become penny stocks before their eventual exits.

Kamath is cautious on penny stocks and said, “Look for companies with consistent growth numbers and belonging to high growth sectors. Also not trying to average down on penny stocks and not putting large sums of money here would be good advice to follow.”

These type of stocks are for those investors who can take high risk. “High risk investors invest in penny stocks, important factors to note would be to allocate a very small part of your portfolio towards this sector. Majority of your portfolio should still be in more liquid assets which can bring security to your portfolios,” said Kamath.

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