The best stock brokers in India offering online trading in a very convenient and user-friendly manner, investors who are unsure about how to go about investing once they open up a trading account are easily drawn to these small-cap stocks or penny stocks.
The reason most people seem to be drawn to investing in penny stocks is that share prices of such companies fluctuate wildly in very short periods of time, providing very high returns potentially. Penny stocks are those that trade at a very low price, have very low market capitalization and are mostly illiquid. Typically, stocks trading under Rs 10 on Indian stock exchanges are called penny stocks.
Plenty of small cap stocks suffer from lack of information about the company policies and management vision. A high institutional shareholding is preferable.Investors have to bear in mind that in most of the cases, penny stocks are of companies that are not transparent in providing reliable information. The stock prices of such companies canbe manipulated by speculators, leading to wild swings in either direction without any clear reasoning to support it. If possible, investors can attend the companies’ annual general meetings to get a further clarity about the nature of operations, management commentary and business outlook.