Penny stocks fetch 100% returns despite market slide

Usually, Z category stocks invite a wary look for their weak market capitalisation. But many investors have made a killing off penny stocks that bourses sometimes warn you to be watchful of because of their propensity to violate listing agreements. Since the beginning of this calendar year, the prices of some of the Z category stocks have jumped as much as 100%. Compare this with most of the blue-chip stocks that lost more than 20% since the Indian equity market fell from its peak in mid-January.

Consider the example of Gujarat Foils Ltd's stock that rose from Rs 28.15 to Rs 125 since the beginning of the year. Those who invested in this company made a whopping 344.05% in price appreciation. Modella Wollens Ltd went up 206.09%, or Rs 45.65. The share went up from Rs 22.15 in January to Rs 67.80 now. Sandur Manganese & Iron Ltd, among the most traded securities of late on the Bombay Stock Exchange (BSE), surged 162.56% from Rs 464.25 to Rs 1,218.95. Investors in this company made a neat Rs 754.70 a share. Other stocks such as Scana Color India Ltd, Prime Industries, Apeego Ltd and Panyam Cement gained in a range of 20% to 90%, BSE data show.

Kaushal Shah, deputy head of research at LKP Shares, said, “There are instances of some stocks becoming the darling of the trading community and in the next moment, they fall steeply. Z category stocks usually have a very bad corporate reputation and low corporate governance standards. Information about the companies is not readily available, which makes it easier for a section of investors to manipulate prices. Some blue-chip stocks once had a small market capitalisation. Through consistent performance, any of these stocks also can become a blue-chip in the future.” Many a scam owes to price-rigging in the Z category, often by a promoter-operator nexus, experts said. The head of research at a traditional brokerage said, “Some speculative elements in the market do indulge in price-rigging. They may try to hike the price, misleading other investors, and as the stock price increases, they start offloading their stake in the upward run. To have a better price discovery of the stock, the exchanges don’t have any circuit-filters on the first day and these elements take advantages of this.”

Some of the Z category stocks, which work on the ‘pump and dump’ philosophy, have...