These risky stocks have rallied the most in the last six months
Rallying 266-1,062%, the 33 stocks turned multi-baggers in just six months, indicating the bulging profit of retail investors as typically institutional investors tend to avoid penny stocks
Investors made fortunes from betting on penny or low-value stocks in an Indian stock market that scaled record highs in the first half of the calendar year undeterred by the economic turmoil from the pandemic.
Such stocks, typically priced less than ₹10 and considered the riskiest across categories, made up about 66% of 50 stocks that fetched the highest returns this year so far, showed a Mint analysis.
Rallying 266-1,062%, the 33 stocks turned multi-baggers in just six months, indicating the bulging profit of retail investors as typically institutional investors tend to avoid penny stocks. In comparison, the Sensex and the Nifty made modest gains of 10% and 13%, respectively, in the same period, which was still the best half-yearly performance of the two equity benchmark indices in five years.
Similarly, the BSE Midcap index climbed 25.7%, while the BSE Smallcap surged 38.7% in the first half of 2021, compared to negative returns in the same period last year. Both clocked their best half-yearly returns in seven years.
During the period, except for one, the top 10 performers among all listed stocks were penny stocks. For instance, Gita Renewable Energy Ltd surged 1,062%, giving the best return, followed by Chitradurga Spintex Ltd (888%), Sangam Renewables Ltd (778%) and Nyssa Corp. Ltd (742%).
Penny stocks are illiquid shares, which are highly volatile and, hence, considered riskier bets. These stocks are often targeted by a handful of speculative traders and often fall prey to a sudden crash in prices, said analysts.
“Manipulation and speculative trading are among the primary reasons for penny stocks to rise in this market environment. Also, for retail traders, making maximum returns by making a low investment is what works best," said Deepak Jasani, retail research head, HDFC Securities.
Jasani said the sharp rally of mid- and small-cap stocks in the last few months created euphoria and FOMO (fear of missing out), which led mostly retail investors to pile on to low-value stocks to make maximum returns. Typically, institutional investors reduce exposure in these stocks during such times, he said.
The phenomenon of rising penny stocks in India is drawn parallel to the meme stock mania in the US, where so-called meme stocks have rallied sharply following investment ideas shared by retail investors on social media forums such as Reddit’s WallStreetBets. Meme stocks such as AMC Entertainment, Clover Health and Wendy’s have surged sparked by social media chatter.
Meanwhile, in the Nifty, only half a dozen stocks fell in the six months to June while the rest rose as much as 85%, suggesting a broad-based rally. Kotak Mahindra Bank lost 14%, Hero MotoCorp slipped 7%, while Maruti Suzuki, ITC, Housing Development Finance Corp. and Nestle India were down 4-2% during this period.
Tata Motors and Tata Steel led the rally with gains of 85% and 81%, respectively. JSW Steel, UPL and Grasim jumped 64-77%.
