Sunday, December 9, 2007

Rally in Penny Stocks, will it last ?

The Indian markets in the recent past have moved in the top gear, bringing smiles to the face of the investors. The market zoomed ahead on back of biggies like Reliance Group, DLF and ICICI bank. However, a group of small companies which many investors haven`t heard of, are passing strong currents in the market. The stocks of such companieswhich don`t crop in the list of the market raisers but are moving far more swiftly than the so called blue chip companies. Its intersting that many of these so called small gainers are inclusive of penny stocks which are not highlty recommended by the market pundits.

Lets have have look at some of the small stocks that may have not impressed the analysts but have helped the investors gain a considerable sum in the short span.

Orissa Sponge

The reports of POSHCO taking over the company has sent the stocks of the company to dizzying heights over the past one year. The stock of the company zoomed from Rs 25.15 (Dec. 07, 2006) to Rs 568.80 (Dec. 07, 2007) after piercing the life high if Rs 747.50.

Balasore Alloys

The stocks of the company rose from Rs 7.60 (Dec. 06, 2006) to Rs 70.00 (Dec. 07, 2007) after touching a life time high of Rs 78.15.

A V Cottex

The stock of this, a cotton yarn producer in a period of 3 months advanced from Rs 10.40 to Rs 36.70.

Some like Vista Pharma, Rama Pulp, Network, Kailash Ficom, Era Financial, Tyche Peripherals, Alka Securities, Vasparr Fischer and Cranex have gained between 100-200%, there are as many as 28 penny stocks that have gained more than 50%.

The Indian retail investors who in the last decade tried to shy away from the penny stocks are now up to some daredevilry. However, the fact that investors are placing their confidence in the penny stocks may also seem worrisome. Some of these companies which have market capitalization of less than Rs 500 million have also witnessed bullish trade. In these small companies, where institutional interest is practically non-existent, it would very difficult to make an exit when the matters seem to be grim.

The Mutual Fund Industry, with a flurry of small cap funds seem to have gathered termendous potential in the stocks of small cap companies. However, the saying `` no risk no gain`` has been rightly justified for the investors who have invested in stocks in some of the above companies and are now laughing all the way to the bank.

Analysts have always touted caution with regards to investing in the small cap; but, in the equity market all gains are crowned only to those who dared to take the risk, so it won`t be wrong if we say ``Sowed a penny, gain a pound !.``

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