For newbies trying their hand at the stock market, putting some money in penny stocks is one way of making profits in the fast-paced world of investments. Usually, stocks that are priced below Rs. 20 apiece are deemed penny stocks. While these cheap rates are a major part of their appeal, they have also earned a reputation for being highly volatile. Nevertheless, many Indian investors are purchasing penny stocks from small businesses, which demonstrate the ability to churn out promising returns at a later stage.
In fact, numerous large-cap shares in the current market used to be the dreaded penny stocks a couple of decades back. This clearly proves that investing in such assets should not necessarily be a scary prospect.
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A list of trending stocks under Rs. 20 in India
Here’s a list of the trending shares under Rs. 20 that you can consider adding to your investment portfolio.
- Suzlon Energy: A prominent name in the renewable energy sector, Suzlon Energy is renowned for its wind turbine generators. With a focus on clean power generation, this company has 14 state-of-the-art manufacturing facilities in India. Moreover, it operates in 17 nations across Asia, Europe, Africa, and the Americas.
- Reliance Power: Helmed by Anil Ambani, Reliance Power is one of India's biggest players in the power generation sector. The firm delivers end-to-end services for power projects in both domestic and international markets. Plus, Reliance Power is a part of the Reliance Group, which boasts an extensive repertoire of businesses in domains like telecommunications, finance, media, and entertainment.
- Vodafone Idea: A joint venture by Vodafone Group and Aditya Birla Group, Vodafone Idea is a telecommunications company that offers voice and data services to retail customers. Likewise, it renders enterprise solutions related to mobility, connectivity, security, Internet of Things (IoT), and cloud services to all kinds of commercial establishments and government organisations.
- UCO Bank: Headquartered in Kolkata, UCO Bank is an undertaking of the Indian government. This public sector institution operates in multiple segments of banking, including corporate, rural, and international. Furthermore, it oversees the management of several government-based bonds and schemes.
- Yes Bank: After facing serious financial crises in 2020, Yes Bank, with the RBI’s intervention, has bounced back in the stock market. At the moment, it offers a variety of fiscal services for personal and corporate banking. Similarly, it provides loans to upcoming small and medium-sized businesses and farmers to support crop cultivation, farm mechanisation, and more.
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What are the advantages of investing in stocks under Rs. 20?
- Growth potential: There is no denying that such stocks are notoriously inconsistent. Regardless, companies that project signs of success can land you lucrative returns. Even a slight jump in the stock price can lead to substantial gains on your investment.
- Affordability: Penny stocks are economical. If investments in medium or big-cap shares are not possible due to budgetary restrictions, then penny stocks can be a feasible option to bolster your portfolio.
- Market fluctuations: Changes in the seasons, market cycles, or trends can favourably impact the performance of penny stocks that are undervalued. Therefore, buying these stocks at cheap prices can be a good idea, especially if you are predicting a positive shift in market conditions.
- Diversification: Because penny stocks are affordable, you can use them to diversify your portfolio. It gives you an opportunity to invest in firms across domains, thereby mitigating the general risk level of your portfolio.
- Trading volume: Certain shares under Rs. 20 could exhibit high trading volumes, making them easier to sell. A demand for high trading volumes may also denote a stock’s improving performance and potential growth.
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What are the disadvantages of investing in stocks under Rs. 20?
- Volatility: Penny stocks are often highly volatile compared to higher-priced shares. This factor is a double-edged sword, fostering opportunities and risks for you.
- Low liquidity: Stocks with low-priced brackets often suffer from poor liquidity. This translates to low trading volumes, which makes them harder to sell. There is a high possibility of incurring losses if you decide to exit a position abruptly.
- Inherent risks: Typically, shares under Rs. 20 are offered by small businesses that might lack the stability and credibility of big companies. Hence, investing in certain penny stocks will always carry a considerable amount of risk.
- Inadequate information: Penny stocks might not be regularly covered by news agencies and financial experts. This can be inconvenient if you are looking for more detailed and authentic insights before entering any position.
- Scams: Fraudulent parties or companies can engage in pump-and-dump manoeuvers, where penny stocks with very little or virtually no underlying value are sold to dupe unsuspecting investors. These bad investments can cause serious losses in the long run.
What considerations should you make before investing in shares under Rs. 20?
By now, you must be aware that investing in penny stocks can’t be an impulsive move. It has to be well-researched and reinforced by sound financial instincts. Be mindful of the following factors before you step onto the fickle turf of penny stocks.
- Industry evaluation: The domain of a penny stock has a pivotal influence on its growth potential. So, go through the competition and industry trends to comprehend if the firm is a candidate for expansion and success.
- Financials: While investing in a penny stock, carry out a personal audit of the company’s financial health. This includes checking its revenue, profit margins, and debt. Likewise, look at its leadership and business models to assess if it has what it takes to thrive in today’s competitive landscape.
- Liquidity: As discussed earlier, stocks under Rs. 20 are afflicted by low liquidity. Ensure the penny stocks you are interested in hold decent liquidity levels so that you at least can buy or sell them at any time.
- Diversification: To reduce your portfolio risk and increase the likelihood of gains, diversify by investing in penny stocks offered across segments and domains.
Closing thoughts
Low-cost stocks under Rs. 20 are a viable investment channel if you are a beginner or simply have limited funds to spare. But their volatile nature, coupled with inherent risks and vulnerability to scams, makes them a little less than desirable. However, if a penny stock has caught your attention, then the first order of business should be to run a background check on the company along with a thorough analysis of its financials, industry trends, and growth patterns.
