Penny stocks in India: An investing guide

Penny stocks in India: An investing guide
Reading Time: 7 minutes

Penny stocks are low-priced, speculative stocks of small companies that trade at a relatively low volume. These stocks are usually priced under ₹10 in India and can be highly volatile.
They have gained popularity among investors in India due to their potential for high returns. Many investors see buying penny stocks as an opportunity to invest in small companies with high growth potential.
This blog will provide a comprehensive guide to Indian penny stocks, including their definition, characteristics, benefits, risks, and strategies for successful investing.

What is a penny stock?

Penny stocks are traded on stock exchanges for less than ₹10. In India, they must be purchased for at least ₹0.01. The NSE and the BSE are where these stocks are traded in India. 

These are commonly referred to as shares of firms with a market capitalization of less than ₹10 crores in India.

Multibagger penny stocks refer to stocks that trade at a low price but have the potential to deliver multifold returns in the future. In India, these stocks can be found in various sectors such as healthcare, technology, and infrastructure.

Features of penny stocks

Let’s understand the various features that can help you identify the best penny shares for your portfolio:

  • Low liquidity: Penny stock is generally associated with small enterprises and moves sparingly, indicating a lack of market liquidity or buyers. As a result, because buyers are not always accessible, investors may find it challenging to sell a penny stock in an emergency.
  • Limited historical data: Some of the firms listed as penny stocks may be brand new, while others may be in danger of going bankrupt. These companies generally don’t have any history at all or have a very bad history. As you can anticipate, it is difficult to assess a stock’s potential when there is a dearth of historical data.
  • Highly Volatile: Penny stock often exhibit higher levels of volatility, which leads to greater potential for profit and, as a result, higher levels of risk.
  • Low cost per share: Penny share prices are inexpensive to buy as compared to other shares.

Types of penny stocks to buy in India

Penny stocks in India can be classified into three types: turnaround, speculative, and growth stocks. 

  • Turnaround stocks: Stocks of companies that have a history of poor performance but are expected to recover. 
  • Speculative stocks: Stocks of companies with uncertain future prospects.
  • Growth stocks: Stocks of companies that are expected to grow rapidly in the future.

Popular Indian penny stocks list 2023

  • Suzlon Energy Ltd.
  • South Indian Bank 
  • Jammu & Kashmir Bank Ltd.
  • Bank of Maharashtra Ltd.
  • Indian Overseas Bank
  • Vodafone Idea Ltd
  • Infibeam Avenues Ltd
  • Reliance Power
  • PC Jeweller
  • Yes Bank Ltd.

Pros and cons of investing in penny stocks

Penny stocks can provide significant returns in a short period of time.Penny stocks are highly volatile and can experience large price swings, resulting in significant gains or losses.
Penny stocks are inexpensive to purchase, allowing investors to diversify their portfolios.Due to low trading volumes, penny stocks can be difficult to sell quickly, leading to potential losses.
 Penny stocks are often associated with small companies that have the potential to grow rapidly.Information about penny stocks is often limited, making it difficult to make informed investment decisions.
Penny stocks provide small businesses a way to access funding from the public.Penny stocks are often used in fraudulent schemes and are thus, very risky.

Is penny stock a good investment?

Indian penny stocks have gained popularity among investors because they have the ability to generate rapid development in a short amount of time. Small investments can provide significant returns.

  •  A lot of respectable companies deal in penny shares. They can have established management and teams, solid financial standing and improving ratios, increasing revenue, and ground-breaking goods or services that are prepared to rule an industry.
  • We are all familiar with the rush that comes with significant investing gains (and losses). Hunting, trading, and penny stock investment are all fascinating and exciting.
  • A small amount can grow into considerably more! The bulk of penny stock traders start out with little sums. A person may only be able to buy three or four blue-chip stocks of companies with Rs. 1000 to trade but they may purchase thousands of best penny shares for the same sum of money.
  • Gains Occur Quickly: Not all penny shares see quick price changes. However, those who do frequently cause significant price changes in days as opposed to years.

Note: Due to their lack of liquidity, penny stock may be a risky investment. For instance, penny stocks to buy at a very low price can give you trouble at the time of selling. Some penny stocks fade away over time and may even be delisted, which would mean losses. Therefore, it is not necessary that investing in penny stocks would result in phenomenal returns.

Who should invest in penny stock?

  • Penny stocks are the best investment choice for people who are new to investing. They give more freedom for experimentation and help inexperienced investors learn the basics of trading. 
  • They are inexpensive solutions because of their minimal costs, which also help investors avoid potential losses. Since trading with such companies doesn’t require a professional or technical analysis because penny share prices are mostly speculative in nature. 
  • Penny companies seldom capitalise on the market, so their stock only trades occasionally. Investors who own these shares might employ a staggered purchasing or selling strategy to increase their holdings or reduce their holdings.
  • Some businesses also benefit from issuing penny stock to potential investors first before entering a bigger market. Given their current cheap pricing, share appreciation has considerable upside potential. 
  • However, traders must take into account the higher risks they expose themselves to when investing in penny shares before making a decision.

How to invest in penny stocks for long term? 

Investors must be careful in their research and diversify their investment portfolio to protect themselves from any hazards associated with the greater return prospects of good penny stocks.

. Here are some tips on penny stocks to buy in India:

  1. Do your research: Before investing in any penny stock, you must do your research. Look for stocks of companies that have a strong business model, good management, and strong growth potential. You can also look at the company’s financial statements and news articles to get a better understanding of the company’s performance.
  2. Diversify your portfolio: Penny stocks are highly risky, so it’s important to diversify your portfolio to minimize your risks. Invest in stocks of different companies and sectors to spread your risks.
  3. Use limit orders: When buying or selling penny stocks, use limit orders instead of market orders. This will help you avoid paying a higher price than you intended.
  4. Set stop-loss orders: Set stop-loss orders to limit your losses. This will automatically sell your shares if the stock price falls below a certain level.

Investing in penny stock via smallcase

You can also invest in a basket of popular penny stocks via smallcase. Simply go to or the smallcase app, log in with your phone number, and connect your broker account. Then, go to ‘Discover‘ and enter ‘penny‘ in the search bar and hit enter. You’ll find an array of stock portfolios that have Indian penny stock companies. Just pick the one that fits your investment criterion.

Make sure that you do your diligent research before picking the right stock, considering your long-term investment goals and risk appetite. 

Common mistakes to avoid when buying penny shares

When buying Indian penny stocks, it’s important to avoid common mistakes that can lead to losses. Here are some mistakes to avoid:

  1. Falling for hype: Penny stock is often promoted through hype and speculation. Avoid falling for the hype and make informed investment decisions based on research and analysis.
  2. Overtrading: Penny stock trading is highly volatile, so it’s important to avoid overtrading. Stick to a trading plan and avoid impulsive trades.
  3. Ignoring risks: Penny shares is a highly risky investment, so it’s important to be aware of the risks and manage them effectively.

In summary, good penny stocks can be a great investment opportunity for those looking to make a high return on a low initial investment. However, it is important to conduct thorough research, choose the right stocks, and have a solid investment strategy.

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