The year 2021 was quite a remarkable year for the Indian stock market as despite the economic slowdown the market flourished almost in all segments. This was especially true in the case of the low-priced stocks aka penny stocks (below Rs.10 stocks) that turned out to be multibagger stocks. Interestingly, more than 102 stocks went beyond 1000% of its price and going by a data, around 850 of these low-priced stocks doubled in just 1.5 years. Now that these stocks skyrocketed in 2021, the question is, should you invest in penny stocks in 2022? Will you earn profits from investing in penny stocks in 2022?
Well, before we answer that question, let’s know the basics of penny stocks –
Penny Stocks are Risky
Everybody likes a bargain and buying penny stocks in large number certainly seems like a good deal. However, one has to remember that penny stocks have a reputation of burning investors money the most. The reason? Well, they are highly risky. Then again, they are in this category either because –
- of the extremely small size of the company,
- heavy fall of business (Unitech, Vodafone-Idea) or
- due to financial crisis.
These Low-Priced Stocks Do Not Have Liquidity
Unlike small-cap, mid-cap and large cap who have high liquidity and can be bought/sold any time you want, penny stocks are illiquid. This means, if and when you want to sell this stock you might not find a buyer to sell your stocks.
Penny Stocks are Vulnerable
If you see a list of penny stocks either in NSE or BSE List, you’ll be surprised. The reason? Well, you might have never heard their name. Also, these stocks are quite vulnerable when it comes to insider trading because of low liquidity, which also becomes one of the key reasons for their gigantic rise and huge falls.
And at times, penny stocks might even fall in BSE’s T to Z grades which is nothing but huge red signal for any investors.
Now consider the example of Tata Teleservices Maharashtra Limited (TTML), a penny stock that rose almost 6000% in 2021 despite the loses.
A Rs. 2.25 share reached Rs. 290 in 2 years and interestingly the journey from Rs. 44 to Rs. 290 happened in merely 6 months. However, as soon as the news came that the government will bail out TTML and post the conversion the share prices would likely be Rs. 41.50, the share locked in at 5% lower circuit. Many of the investors didn’t even know that TTML falls under the T category as classified by BSE.
Now, does that mean you should not be investing in penny stocks in 2022?
Well, you certainly can. However, before you do, you need to check the fundamentals. If you get a penny stock with strong fundamentals then investing in it might certainly give you much higher returns than the average benchmark indices return.
Besides, you need to check –
- the technical indicators whether or not it shows a bullish trend
- the volume activity, whether there has been a rise in the buying activity
- the sector news whether it supports the growth etc.
Going by these factors, it is interesting to see how Suzlon Energy have been rising gradually yet consistently from December 2021. From merely 6.85 on December 17, 2021 (I remember the date because I bought couple of them) to reaching the 12.25 mark on January 13, 2022 (that’s less than a month!) and still showing technically and fundamentally signs to rise.
You need to search such penny stocks that fits the above factors if you need to earn good amount in a short period of time. This way by entering at the right time, you can earn profits from investing in penny stocks in 2022.
Do you invest in penny stocks? What is your experience – The good? The bad? Do drop in your views in the comment section.