17 penny stocks zoomed up to 500x in the Narendra Modi era. Do you own any?

Jyoti Resins, Tanfac Industries, Olectra Greentech now trade above Rs 1,300 per share as against a single-digit stock price way back in May 2014, study shows.

In stock markets, fortune favours the brave. More often than not, experts usually advise novice investors to stay away from penny stocks – that is stocks that trade below Rs 10. Microcap stocks – those between market capitalisation (market-cap) between Rs 10 crore and Rs 500 crore -, too, have been at times a ‘no go’ area for some stock market experts given the inherent volatility.

History, however, suggests otherwise.

In the last 10 years – since the Lok Sabha election results were announced back in 2014 that saw the National Democratic Alliance (NDA) assumed power for the first time with Narendra Modi at the helm, as many as 17 stocks across the Sensex, midcap and the smallcap segments on the BSE have given returns in excess of 200 times.

 

A bulk of these stocks – 14 out of these 17, or nearly 82 per cent of these counters – were penny stocks, i.e. they traded less than Rs 10 on the BSE back then.

Frontline indices – the S&P BSE Sensex, BSE Midcap index and the BSE Smallcap index have surged 214 per cent, 470 per cent and 508 per cent respectively, ACE Equity data shows.

Kranthi Bhatini, director-equity, WealthMills Securities believes that majority of the small-and microcap companies have taken advantage of the structural shift and resilient growth in the Indian economy post Modi government coming to power in 2014.

“Prior to 2014, mid-and small-cap stocks were underperformers for a long time. However, after the Modi government came to power in 2014, the economy has shown greater resilience and we are seeing sustainable developments. A lot of these small-and microcap companies have taken advantage of this factor,” Bhatini said.

Meanwhile, at the other end of the spectrum are counters such as Vodafone Idea, YES Bank, GFL Ltd., Den Networks, Reliance Infrastructure and Dish TV India that lost up to 83 per cent during this period, shows data.

Topping the winner’s chart is Jyoti Resins & Adhesives with a phenomenal 488 times surge, from Rs 2.68 levels on May 15, 2014 – a day before the Lok Sabha election results were announced back in 2014.

 

Tanfac Industries (up 230 times), Olectra Greentech (221 times), KEI Industries (206 times), Sadhana Nitro Chem (205 times), Gujarat Themis Biosyn (197 times) and Tanla Platforms (188 times) are some of the other stocks that have seen a stupendous rise during the last 10 years.

Another factor that has aided the performance of stocks of smaller companies at the bourses, analysts said, is a structural shift in sectors such as metals, defense and chemicals, in line with improvement in the broader economy, which has helped numerous companies improve their earnings and fundamentals. This, they said, has translated into these stocks turning into multi-baggers.

 

That said, Bhatini said that there is a vast difference between penny stocks and value investing. In case of penny stocks, valuations, he said, are high and the stock prices are in single-digits. Value investing, on the other hand, takes place in stocks which are lying under-valued; however, as the companies’ earnings visibility improves, a turnaround in stock price unfolds.

"Despite existing market bull-run, value investing always exists. Investment in penny stocks always comes with inherent risk. Investors need to understand the management quality, strength and future growth plans of the company before investing," he said.