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Important Factors to Consider when Picking the Right Penny Stocks for Investing

05 Jan 2023

If you are wondering what penny stocks are, you can wonder no longer. They are those stocks in markets which trade at extremely low prices and have a market capitalization which is on the low side. So, what are penny stocks, and what implications do they have? Penny stocks have a low degree of liquidity and they are speculative in nature, where the Indian stock market is concerned. 

Why Invest in Penny Stocks? 

If this is the case where penny stocks are concerned, you may wonder why investors would invest in them at all. If you are looking for penny stocks to buy, you may be interested in them because they are low in price. Investors are of the view that these stocks may be low in price to start with, but potentially rise in price in the near future. This is how the narrative about penny stocks in the Indian market goes. However, if this looks like an interesting proposition for you as an investor, and you have answered the all-important question, “What are penny stocks?”, you should consider some factors before you leap into the ring and buy penny stocks. 

Factors to Consider When Picking the Right Penny Stocks to Buy

All companies that have a low share price are not penny stocks. Stock prices may be low, but market capitalization may be high. Once you are aware that penny stocks represent the stocks of those companies that trade their stocks at a very low stock price, and whose market capitalization is under Rs.  100 crores, you should note the following factors before you invest: 

  • The Behaviour of Prices -  One of the key ways to gauge whether a penny stock is worth the investment is to assess whether the stock’s price is gradually increasing or not. If you see prices of stocks becoming stronger, then those penny stocks are worth your time and money. However, although this is an important variable to take cognizance of, it is not the only one you should consider.
  • Business Changes - “What are penny stocks?” may be the first question you asked yourself before investing in penny stocks, but there are more to get answers to. For instance, if you are considering a particular company’s penny stock, you may ask what changes have been brought about in the company to make it grow. You may also query whether there have been any alterations in the company’s management. Are revenues growing or stagnant? Answers to all this have a lot of bearing on the way a company performs, and whether your penny stock will bear any fruit in the future. 
  • Company Fundamentals - The foundations of the company whose  stock you are investing in are important to note. The fundamentals of any given corporation include its market capitalization, net sales, pattern of shareholding, cash generation from its operations, the company’s management, etc. If all these variables are positive, you may see growth potential in a company’s penny stock and invest in it. 

Wisdom in Investment

Everytime you choose to invest in stocks, you have to do some due diligence and decide to invest. Your research and homework is important and could have a close relation with returns you may see in the future. When you invest in any stocks, you have to open a Demat account online. You can do this at Motilal Oswal and get great tips to invest in penny stocks that may certainly get you profits.

Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account | Upcoming IPO | LIC IPO

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