Activity in other operator-favourite scrips also gains pace.
Speculators are back at it. Even while the broader equity markets fell sharply during November, activity in penny and other operator-favourite scrips has picked up. This often lures small investors and most get stuck, as they are not able to time their exit and volumes dry down.
Among the little known stocks, trading below their face value, 40 shares rose between 20 per cent and 100 per cent in November. The share price of Venmax Drugs and Pharma and Bluechip Stockspins has doubled in a month. This when the benchmark BSE Sensex fell nine per cent and the BSE Mid-cap and BSE Small-cap indices crashed 11 per cent and 13 per cent, respectively, in the month.
Activity has also been noticed in shares of Pentamedia Graphics, part of trader Ketan Parekh’s K10 scrips, and Money Matter Financial Services, which crashed after police raids on company directors in 2010 on suspicion of involvement in the housing loan scam. Many such stocks were seen locked on BSE upper circuit in recent days.
Globally, penny stocks are those available for $1 or less. In India, shares traded below their face value are mainly so classified. Also alarming is the rise in their number. During November 2010, around 450 stocks were trading below their face value; this year, it is around 670.
Some additions to the list are some of the Initial Public Offers listed in the past couple of years. These include Future Ventures, listed last month; Tirupati Inks, listed last year; and Birla Cotsyn, Decolight Ceramics, Sita Shree Food Products and Celebrity Fashion, among other IPOs listed in the past couple of years. These stocks are down 60-90 per cent from their IPO prices. The Sensex was trading near the 20,000 level in November 2010 and fell sharply after the listing of Coal India. Since then, it has been trading in a narrow range and the number of penny stocks has risen.
According to market players, buying in little known company counters and penny stocks is often seen during the end of a calendar year. Many sell these stocks at a loss around March; brokers say such losses are just book entries, so that tax outgo can be saved. Operators active in these counters take their haircut and pay the rest of the amount to investors in cash.