Should I Invest in Penny stocks stock market?
Penny stocks are the ones that are in the price range of a few paisas to a few rupees. If you are investing in a stock which is at 500 Rupees and it is falling by 20% in a day. The stock will come down to 400 and you would have lost nearly 100 Rupees. If you had bought 100 shares, your loss would have been 10,000 in a day.
Are you ok to lose 10,000 if you are first-time investor?
20% stop loss is a general recommendation if you want to start investing in the stock market.
Investing in penny stocks stock market
You are going to consider penny stocks as the price of each stock is just under 1 rupee.
Now you are going to invest 1000 rupees. You would have bought 1000 shares for 1000 rupees.
If you had bought a share price of 500, then you would have purchased only 2 shares for the same 1000 rupees.
Owning 1000 shares is important or owning 2 shares is important?
Hopefully, most of you would have preferred owning more shares. Many of my friends who have ventured into the share market did this initially. They didn’t mind letting go of those 1000 or 5000 initially.
Usually stocks hitting upper price bands can be a penny stock. You can from NSE website for identifying penny stocks based on this, https://www.nseindia.com/products/content/equities/equities/price_band_hitters.htm
Price movement in penny stocks stock market
The most difficult thing in the stock market is to identify the price movement of stocks. When it comes to penny stocks, this is even more difficult.
Analysts track only stocks which are big and their attention will not be there in these stocks. So you need to analyze these stocks on your own and make a decision of investing.
Analysing Penny stocks
Let us take an example from the above list. Let us analyze “Blue Blends Private limited”. The total debt of this company has grown from negative 73 crores to 87 crores
Source : Money control
When the market capital of the company is just 2 crores and total debt is 87 crores then is it wise to invest ?
Source : Money control
Let us check one more stock, Adlabs entertainment limited.
It has market cap of 38 crores and total debt of 1074 crores as of march 2019.
In March 2018 it was at 974 crores. No profits in the last 5 quarters. This company is in entertainment industry.
Is it wise to invest in this stock ?
Don’t get cheated in stock market ?
At times you will be framed to invest in these stocks.
Yes, some of the stocks will be consistently showing growth in stock market. There will be a huge rally which shows there is a turn around in the company.
Remember for a new investor this is more than enough to invest in a company. The basic technical analysis in money control website shows that company is in trouble.
If you are new and investing in entertainment industry will make you do it. It comes close to wonder la parks in southern India which is doing good in stock market.
After a while, if you had bought, you would have got locked in this stock.
Slowly the price goes down and there wont be anybody to buy. You want to sell and there will not be anyone to buy those stocks.
Some of the stock brokers would have formed a cartel and they keep buying among each other. They do this until retailers join in. This is when you would have received SMS messages saying when to buy and sell.
Once you believe and invest in these stocks or you yourself invest, you will lose your money.
Invest wisely and stay invested for better returns.
To perform fundamental analysis and invest yourself find my online course of stock market.