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6:22-23 - "The lamp of the body is the eye. If your eye is sound, your whole body will be full of light. But if your eye is evil, your whole body will be full of darkness. If all the light you have is darkness, it is dark indeed!"

29 Jan 2017


Hi Friends,  Penny Stocks/Micro Cap Stocks are those which trade at very low prices and has a low market capitalization.  Penny stocks generally trade at Rs. 0.05 to Rs.10 per share.  Its share price is usually fluctuating hence the investors may lose money.  Therefore investors should know the following things before trading or investing in penny stocks. 

1.       Take care the value of shares instead of share price.   Now a days penny stocks are available in very low price.  Some media may also recommend these shares for investment as to fulfill their interest.  Share price would tempt investors to buy such stocks.  For example, Reliance stock price per share is Rs.834/-,  but a penny stock Agro Duch Food is Rs.3/-.  If you have Rs.10,000/- to invest, you would get only 12 Reliance shares, while on the other hand you would get  3333 shares of Agro Duch Food.  Here not think how many shares you are getting but think about what value these stocks offer.  So always research about the value of such shares you invest.

2.      Low trading volumes/Low liquidity.   Take an example Agro Duch Food, price Rs.3/- volume 15,000 on 28.09.2015.  If you want to sell and come out is very difficult in these shares.  But in Index shares, within seconds you can sell your holdings as this counter gives very high volumes.  In the above Agro Duch Food counter the amount traded is only Rs.47,100/-.  Such stocks have less liquidity as it would depend on demand from buyers.

3.       Insider Trading.   As per SEBI rules insider trading is prohibited, even then, since the penny stocks have low volumes, share price of such stocks can be easily manipulated by market participants, vested interested brokers or promoters of the company.  If a penny stock price is reaching upper circuit everyday without any news about the company, it is clear indication that someone is manipulating the share price.  So beware it,  and study the fundamentals of the company and if the fundamentals show growth then only you go for that share.  Otherwise  No.

4.       Ignore success stories.   Brokers, Analysts, Website etc. indicate success story about penny stock.  They claim that their selection of penny shares in the year 2011  raised upto 500% or even 700% or more.  Poor investors may fall in that trap  and if you invest in their words resulting loses money.  So before investing in penny stocks leave these success stories and study the various things relating to company product, management, financial efficiency etc.

5.       Lack of Goodwill.   Many of the companies considered to be penny stocks are  either newly formed or approaching bankruptcy.  These companies will generally have poor track records or none at all.  As you can imagine, this lack of historical information makes it difficult to determine a stock’s potential.

I shall provide you a good micro share ie Sunil hitech Engeers ltd. Market price is 11.90, a dividend paying company for the last 5 years. Debt equity ratio is 0.5. Share price is below book value. They paid Bonus share 1-1 last year. Professional promoters and good future business growth. Now it is in consolidation stage. Long term investors can invest the shares for 3 years. We may expect extra ordinary capital gains.

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