Penny Stocks to Buy in India 2023

Investing in the stock market opens a plethora of opportunities for your money to grow. There are a number of instruments that you can trade with and earn returns from the same. Experts generally advise strategizing for long-term returns and investing accordingly. You can invest in good-quality stocks and other investment vehicles to build a solid portfolio and build a healthy corpus in the long run. Along with that, you can also try to play with those areas of the market that can multiply your returns in a very short period. One such investment arena is that of penny stocks. In this article, we will learn all that we need to know about penny stocks in India, what are they, and the best penny stocks to buy in India in 2023.

Summary in brief

• Top penny stocks in 2023
• Definition of penny stocks
• Features of penny stocks
• Benefits of investing in penny stocks
• Risks associated with penny stock investment
• How to invest wisely in penny stocks

Let’s have a look at the best penny stocks to buy that have the potential to become multi-bagger penny stocks for 2022 India.

Top 10 Most Popular Penny Stocks in 2022

(Data as of February 23, 2022), Source: Google Finance

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns.

Important things to note for the above data:

• 52-week high prices of the stocks are mentioned to show how high these stocks went in recent times.
• Most of these stocks have outperformed the Nifty 50 in the last 12 months. The current value of these stocks is in between their 52-week low and 52-week high. This is when the Nifty is trading near its 52-week low.
• The list is sorted on the basis of the market cap of the companies, along with other factors.

What Are Penny Stocks?

Penny stocks, as the name suggests, are stocks that are traded at very low prices on the stock exchange. Although there is no specific definition of how low the price has to be for a stock to be called penny stock, it can be anywhere between 0 to Rs 10, or even Rs 20 or 30. In general, they are available at a low price and can be bought in considerable quantities with very small capital. The best penny stocks are the ones that can give you multibagger returns, the reason why they are often called multibagger penny stocks. But why are we talking about such stocks in the first place? Let’s go through the key features of penny stocks and get a better understanding of their meaning. 

Key Takeaways:

• Penny stocks carry the potential to offer manifold returns in a short period of time
• Low liquidity and high volatility are key risks associated with penny stocks
• Following a proper investment strategy and risk management, you can also increase your chances to earn from penny stocks
• Diversification is important when buying penny stocks
• Dedicate only a small part of your capital to buying penny stocks

Why should you invest in Penny stocks?

It's probably the most common question that investors have. The answer is simple: less risk and potentially higher return.

Penny Stocks are less risky than other stocks because they are much easier to buy, sell, and trade. They are also liquid, so you can get in and out of the market quickly if necessary. These two factors make them less risky than investing in other types of assets, such as real estate or mutual funds, which can be difficult for someone who does not have much experience investing or trading stocks.

Features of Penny Stocks

Here are the key features of penny stocks:

Low Market Price

As discussed, penny stocks are by their definition the ones that are available and at a fairly low market price. Based on price also, penny stocks are casually categorized under different price heads like- penny stocks under Re 1, penny stocks under Rs 10, etc. The reason behind their low price is the low market capitalization of the company. Having said that, it is not that their price always remains low. Some penny stocks can grow substantially in value and come out from the category to be called multibagger stocks. 

High Volatility

Penny stocks are also known for their high volatility. Mainly preferred by the ones looking for short-term profits, penny stocks are usually bought and sold in huge quantities by big traders. For example, you can buy 10000 units of a penny stock of Re 1 with just Rs 10,000. The buying and selling of such low-priced stocks in such high quantities induce extreme volatility. This is the reason why the price of penny stock changes very sharply in an unexpected manner. For the same reason, penny stocks are generally considered highly risky investment options.

Low Liquidity

This is yet another risk factor in penny stocks. Often they have considerably low liquidity and may push traders into a situation where either they do not get enough buyers to sell the holdings, or enough sellers to square their short positions. 

High Return Offering Potential

The only reason why we are still learning and caring to read about penny stocks is the reason that can become someone’s reason behind their rags-to-riches story. The best penny stocks list is filled with a number of stocks that have multiplied in their value exponentially within a very short period of time. Such stocks, as we read above, are called multibagger penny stocks. We can understand this with an example- Suppose you buy 5000 units of Re 2 stock that cost you Rs 10,000 overall. Even if the stock prices increase by 50 paise, making its market value to be Rs 2.5, you will earn a profit of Rs 2,500, which is 25%. And this is pretty normal with penny stocks. 25% is nothing, penny stocks can give 300%, 400%, and even more than 1000% return in a very short period of time.

Benefits of Investing in Penny Stocks

The main benefit of investing in penny stocks is obviously their ability to give higher returns in a short period. Their every other benefit revolves around this only. Let’s understand how.

Ability to Turn Multibagger

A number of penny stocks have turned out to be multibagger in the past, and such stories keep on coming now and then from the colony of penny stocks. A stock, that a year ago was trading below Rs 5 is now priced at Rs 500, and all these are quite normal with penny stocks. 

An Opportunity to Earn Tomorrow's Favourite at a Low Price

A number of penny stocks that after being first ignored by the mass of investors turn out to be the market’s favorite in a small time. There is a vivid example of one of the top market cap companies- Adani Green. The company was listed with a stock value of around Rs 50. Within less than four years, the stock price crossed the mark of Rs 3000, which is around a 6000% increase in value. This has not only given the early investors great returns but made the company stand out among big giants. 

Learn Fundamental Analysis for Free

If you want to be the next big bull and want someplace to test your ability of fundamental analysis, there can be none other than penny stocks. Pick the top 50 Indian penny stocks with good fundamentals, do an in-depth fundamental analysis of the companies, and invest in those that you believe will turn out to be a multibagger in the future. Even if you see one out of 10 stocks succeeding as per your expectations, you will become even more confident with your trades. A stock with a solid fundamental only can become a multibagger, and with sound knowledge of fundamental analysis, you can easily filter those stocks. 

Suggestions for Penny Stock Investment

While we learn the benefits of investing in penny stocks, we should also make ourselves explicitly clear that there stands an equal or more chance of penny stocks failing to perform. The success-to-failure ratio in penny stocks is extremely low. Low liquidity, high volatility, and non-availability of proper knowledge of the company pose higher investment risks. 

But there are ways through which you can take the risk of investing in penny stocks and still mitigate the risk, how? Let’s learn in brief.

Don’t Put All Your Eggs in One Basket

The famous diversification rule is also applicable to penny stocks investment. However, it is mainly used not to reduce risk but to increase the chances of earning profits. Keep a low capital (not more than 2-3%) of your entire investment to invest in penny stocks. For example, in an overall investment capital of Rs 10 lakhs, you can keep Rs 20,000 to invest in penny stocks. You can use this Rs 20,000 to buy 4000 units of penny stocks priced at Rs 5 (high and safe in the case of penny stocks). Now instead of buying 4000 units of a single stock, you can buy 500 units of eight different penny stocks.
Even if two out of the eight turn out to be multi-baggers, it will compensate for the losses made in the other six. Say the price of two stocks increases 10 fold, they only can give you a profit of Rs 45,000, which is more than double your initial capital. 

Don't Buy Penny Stocks of Extremely Low Value

Instead of hunting out penny stocks that have a value less than Re 1, try to filter out with a bit more price and strong fundamentals. You start with the best penny stocks to buy in India from Rs 5 and increase your chances of getting higher returns by mitigating the associated risks.

Penny Stocks With the Most Momentum in India 2023

(Data as of 23 February 2023, Source: Google Finance)

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns

What Makes Penny Stocks Risky?

Most investors know that penny stocks are risky, but what makes them so? There are many reasons why an investment in penny stocks is considered high-risk:

First, they are highly volatile, meaning their prices can change rapidly and dramatically. This means that you could make a lot of money quickly, but it also means that you could lose everything if the price of your stock drops too low.

The second reason why penny stocks are risky is that they tend to be very illiquid. This means there aren't many sellers or buyers, making it difficult to sell your stock if you need to cash out early. To sell your shares, you must wait for someone else who wants them simultaneously (which isn't likely).

Penny Stock Scams

Penny stock scams are prevalent in India. The lack of awareness about the risks involved in trading with penny stocks makes it easy for penny stock scammers to scam people.

The primary aim of a penny stock scam is to convince investors that they will make money by buying into a company's shares at a low price and then selling them at a much higher price once their value increases. The problem with this approach is that there is no guarantee that the value will increase; if it does, it may not increase enough for you to make any real money from your investment.

Alternative options to penny stocks in India

The following article will help you find other options for penny stocks in India.

• You can try your hand at Forex Trading as well. Many beginners make the mistake of thinking Forex trading requires a lot of money and experience. But this is not true! All it takes to be a successful Forex trader is hard work, dedication, patience, and consistency.
• If you have been investing in stocks for some time now but don't want to mess with the headache associated with day trading, then it might be time for you to consider investing in mutual funds instead! Mutual funds allow access to professionally managed portfolios that are diversified across many different asset classes.

Things to keep in mind while buying penny stocks

Before you invest in penny stocks, there are several things you need to consider.

• Ensure the company is listed on a reputable exchange (e.g., NYSE or Nasdaq).
• Ensure that the company has been around for at least three years and has sufficient revenues and profits.
• Make sure that the company's balance sheet is strong enough: current assets should be greater than current liabilities plus total debt.
• Don't consider penny stock investment to be a get-rich-quick scheme. The promise of huge returns attracts many investors who want to jump on board and make some serious cash however, it is an investment with little possibility of success.

A final comment on the Penny Stocks List

To conclude, penny stocks may not and should not take the center stage in your investment portfolio. However, at the same time, they should not be ignored as well. Devising a proper investment strategy based on the aforementioned tips, you can also increase your chances of feeling proud to become an early investor in one of the multibagger penny stocks of 2023.

This is not an investment advisory. The blog is for information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, goal, time frame, risk and reward balance, and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs. The performance and returns of any investment portfolio can neither be predicted nor guaranteed.