In the last 6 months, 25 penny stocks became multi-baggers despite Covid-19

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penny stocks – Mumbai: Even as stock markets struggled with major disruptions due to strict lockdown measures following covid-19 outbreak, around 25 penny stocks have become multibaggers with an eye popping rise of 100-1,240% in last six months.

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In the same period, benchmark Sensex slipped 14% while BSE Midcap and BSE Smallcap indices were down 11.42% and 7.8% respectively.

According to Mint analysis, 161 penny stocks have given positive returns while 56 stocks have slipped in the January to June period. Hathway Bhawani Cabletel & Datacom Ltd saw a whopping 1,240% rise with the stock price soaring from ₹3 to ₹40.2. Among others, Opto Circuits (India) Ltd surged 392.71%, while Andhra Cements Ltd soared 331.16% and JMT Auto Ltd jumped 310.61% in the last six months. For the review, stocks with market cap less than ₹1000 crore and stock value ₹10 are considered.

Penny stocks are illiquid stocks, which are generally highly volatile and are risky bets.

“Typically, few far sighted investors buy these penny stocks creating an euphoria around them attracting new smalltime investors with their low value and promise of high returns,” said an analyst in retail broking.

According to analysts, bargain hunting or bottom picking strategy by new market participants led to gains in these penny stocks.

Though the broader markets are far from reaching close to their levels in January, few penny stocks are already at multi-year high. Bottom fishing refers to investing in assets that have experienced a decline, due to intrinsic or extrinsic factors, and are considered undervalued. Bottom fishing is an investment strategy in which investors buy stocks whose prices have recently dropped and are considered undervalued.

According to Amar Ambani, Senior President & Institutional Research Head at Yes Securities, one of the reasons for these penny stocks rising is abundant liquidity chasing all kinds of stocks. Fear-of-missing-out phenomenon among new investors in stock markets often chase such low value stocks, he said. “However, these stocks are also first to fall when there is any unfavourable news in markets. These stocks have fallen so hard earlier and are so low in value that upticks in few of them optically looks robust,” Ambani added.

According to Ambani, penny stocks are mostly operator driven and fall prey to speculative trade too, hence involve high risks.

However, this is not a phenomenon in Indian alone. Hertz, the second-largest car rental agency in the United States had filed for bankruptcy in May but its stock rose from a low of $1.11 to a high of $2.38, up 114% in 24 hours mostly led by traders on Robinhood, a mobile brokerage.

To be sure, while some penny stocks have turned multibaggers, there are also several stocks that have moved in the opposite direction. Around 49 stocks became penny stocks in these six months, losing as much as 90%. Darjeeling Ropeway Company Ltd with a stock price of ₹52.4 a piece in the beginning of the year slipped to ₹5.21 in June, losing 90% in this period. Other stocks are Terrascope Ventures Ltd (down 80.88%) and Novateor Research Laboratories (down 79.59%) are the new panny stocks in the market.

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