An analysis of institutional ownership in penny stocks, defined as those with a market capitalization below Rs 1,000 crore and a share price below Rs 25, reveals that FIIs hold over 10% stake in twelve of these stocks.
Out of these, 7 have provided double-digit returns in FY24 thus far. Here is the complete list:
1) Globus Power Generation
Jaipur-based clean energy company, Globus Power Generation, has maintained FII holding at around 18% over the last four quarters. The stock has surged approximately 64% in FY24 so far. Foreign investors in the company include Elm Park Fund, Ares Diversified, and Eos Multi Strategy Fund.
2) Nectar Lifesciences
Chandigarh-headquartered pharmaceutical company, Nectar Lifesciences, which has rallied 56% in the financial year, is 16% owned by FIIs. However, mutual fund holding is below 1%.
3) Visa Steel
FII ownership in Kolkata-based Visa Steel, which was admitted to NCLT in November 2022, has remained stable at 21.95% over the past 4 quarters. The stock has surged over 53% in FY24 so far.
The company owes a total of Rs 3,400 crore to lenders led by SBI. Other lenders to the company include Bank of India, Bank of Baroda, Union Bank of India, and Canara Bank.
4) Dhanlaxmi Bank
Private sector lender Dhanlaxmi Bank, which returned to profitability in the June quarter with a net profit of Rs 28 crore, has surged 46% in this financial year. FIIs owned approximately 11% of the company as of June-end.
5) Sampann Utpadan India
Sampann Utpadan India, engaged in power generation through wind energy and rubber reclamation from waste tires, has rallied around 35% year-to-date and has FII ownership of 12.21%.
6) Vikas EcoTech
New Delhi-based Vikas EcoTech, which sells specialty polymers and specialty additives and chemicals for the plastics and rubber industries, has experienced a 23% increase in its market value this fiscal year. FII ownership, which was insignificant in the March quarter, has now surpassed 15%.
The Rs 350 crore company recently announced its entry into the conventional energy segment after receiving a Rs 20-crore coal supply order from cement manufacturer Prism Johnson.
7) Yaari Digital Integrated Services
Social commerce platform Yaari, which is backed by Indiabulls Group, had FII ownership of 11.66% in the June quarter. The stock has generated over 20% returns in this financial year. The company’s market value was less than Rs 130 crore. FII backers include Steadview Capital and TIMF Holdings.
What should investors do?
Penny stocks are often viewed by retail investors as an easy way to double or triple their money in a short period of time, but they usually end up eroding wealth. Many new investors search for stocks priced below Rs 20 or Rs 50, believing that a low-priced stock is cheap and a high-priced stock is expensive.
However, price and value are completely different. A penny stock can be expensive at Rs 10, while a share worth Rs 1 lakh can be considered cheap.
“In certain instances, a company’s shares may offer attractive valuations despite being beyond an investor’s accessible range. Identifying such opportunities requires diligent research, a comprehensive analysis of the underlying fundamentals, and maintaining a flexible mindset. Therefore, investors should continuously strive to educate themselves and adopt a long-term perspective when analyzing high-priced stocks, rather than dismissing them simply because of their ‘high’ prices,” said Jimeet Modi of Samco Securities.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)