BEWARE: When the penny stocks drop...
Sagar (name changed) was one of the ill-fated small investors who lost money even before the Bombay Stock Exchange’s benchmark Sensex touched the glorified 10,000-mark. Sagar not only lost the money but also had to make a distress sale of his own house, though very small, and shift into a rented one.
All thanks to the penny stocks he invested in at higher prices following ‘tips’ from his broker. Read on the excerpts published in Mumbai Mirror on Feb 8.
Aboo, the broker of Sagar, confessed to this newspaper that he had got carried away with the rally. “I also lost money in the penny stocks. We invested in it as, being small traders and investors, we have no many and our options are limited. The middle-class, salaried individuals can’t invest much in the Blue chip companies because, in case of a down turn, huge amounts are lost and recovering the capital from these stocks once they are on the wane becomes difficult,” he pointed out.
Yet, there are many small investors still investing in penny stocks, basing their decisions on market predictions that make these scrips look like they are out to grow by about 900 per cent! Citing examples of such stocks, stock brokers specifically warn against companies whose counters are going up without any apparent development in these companies or in these particular industries.
Brokers this paper spoke to took quite a few names like Ugar Sugar, G-O Limited, Balaji Distilleries, Networth Stock Brokerage, Meenakshi Textile and many more companies wherein high volumes of insider trading is suspected. Circuits have been clamped on trading of some of these stocks. Balaji Distilleries, for example, had a transaction volume of more than 1 lakh on Wednesday, while more than 12 lakh shares of Ugar Sugar changed hands on the same day with their prices being quoted at Rs 9 and Rs 49 respectively, showing little marginal gain in the prices.
“There were strong rumours, a few days back, about Balaji Distilleries being bought over by the Vijay Mallya Group which people expect its prices to shoot up. In fact, some people said it would go up to around Rs 55 in anticipation that, soon, a buyback offer for these stocks would come from the company. There was heavy buying on account of this. But the rumour remained just that, a rumour. And many investors’ money got blocked,” said a stock broker at BSE on condition of anonymity. Agreeing with the stand of Aboo, another broker Rahul told this paper, “The small investors should remain away from trading in the penny stocks. Rather, investors should go only for reputed companies considering the long-term perspective of their investments,” said Rahul.
Source: Mumbai Mirror report
