What are penny stocks?

Penny stock is a company whose price and market capitalization are very low. Penny stock does not have such a specific definition. Companies whose share price is less than Rs 20 to Rs 25 are called “PENNY stocks”.

Too many investors and traders think that,

“If I buy shares worth Rs 1,000, I will get only 50 shares for Rs 50,000,

Also, if I buy a penny stock for between Rs 4 and 5, I will get 10,000 to 12,000 shares for Rs 50,000, which means I will get more shares.

If a 4 to 5 share is worth Rs 8 to 9. I will get a very good return  even if it goes as far as. 

But this is all wrong. Because penny stocks are not good. I’m not saying that only big bucks are good. Whether the stocks are good or not depends on the company and the company’s FUNDAMENTAL.  But just looking at the price and buying the company’s shares based on that price is wrong. 

A lot of people think that the higher the share price, the bigger the company and the smaller the share price, the smaller the company. But it was nothing like that. 

E.g. MRF is priced at Rs 89,100 per share and ICICI Bank is priced at Rs 535 per share. Can you tell me which of the two companies is bigger? If your answer is MRF then it is wrong. There was nothing to give or take in the company’s share price and the size of the company. The size of a company  is determined by that MARKET CAPITALIZATION.

The formula for market capitalization is: – Price of One Share x No. Share Outstanding.

One share of MRF is priced at 89,100 and has 42,41,143 shares. According to the formula of market capitalization as mentioned above

The market capitalization of MRF is 37,855 Cr. That’s it. As well as

ICICI Bank is valued at Rs 535 per share and has 690,36,93,527 shares. ICICI Bank’s market capitalization is 3,69,347 Cr according to the above formula. That’s it. 

This means that even though the share price of MRF is much higher than that of ICICI Bank, the size of ICICI Bank  is much higher than that of MRF. Therefore, we must focus on the size of the company, the fundamentals, the balance sheet  rather than the share price of the company. If you want to buy a “penny stock”, think about why that stock is a penny stock, and at the same time study the company’s background , fundamentals, the same product.  Some penny stocks are such that if you go to sell them, they are not sold because there are not many people buying their shares. You have to be very careful while trading in penny stocks, because TIMMING is very important. LIQUIDITY is low in that trading time and the trade will not be complete for you. Liquidity  should also be considered when investing or trading in penny stocks. There are some penny stocks that can give you a good return on your small investment. 

Mr. Rakesh Jhunjhunwala, one of the most successful investors in India, said that the shares of Titan , which is today’s largest brand of “jewelry”, were worth between Rs 4 and Rs 5  in 2002-2003. Was purchased by And today they cost Rs 1,400. Is. They have got up to 12000% return from this company. This does not mean that all penny stocks will return much better later. 

“Finding good fundamentals in penny stocks is like finding a” diamond “in a coal mine. And if you buy coal instead of diamonds, your investment will not take long to turn into coal”. 

Most penny stock companies are small and their study information is very difficult because they do not get company information quickly. The price of penny stock is unauthorized trading due to market capitalization and low liquidity.  

One thing to keep in mind is that very low penny stocks have the potential to give good returns. As long as you don’t have a good stock market experience, it’s best to stay away from penny stocks as long as possible. If you want to invest in penny stocks, invest a very small amount 

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