As the Indian equity market witnessed a sharp recovery from the COVID-19 lows, select penny stocks, those priced below Rs 10, have managed to change the fortune of investors amid the ongoing bull run.
The benchmark NSE Nifty index has gained 123 per cent to touch 17,415 on November 24, 2021, from the lows of 7,801, scaled on March 24 last year. Broader indices Nifty 500, Nifty Midcap 100 and Nifty Smallcap 100 have advanced 136 per cent, 176 per cent and 230 per cent, respectively, during the same period.
Coming to the major movers on the National Stock Exchange (NSE), agri-biotechnology firm Equippp Social Impact Technologies has emerged as the top gainer in the list.
Shares of the company have soared to Rs 83.90 from Rs 0.20 on March 24 last year, indicating a rise of 41,850 per cent. This means Rs 1 lakh invested in this stock has now turned into over Rs 4 crore in just 20 months. The company was earlier known as Proseed India.
IT services and business process outsourcing 3I Infotech is the next penny stock on the list. Shares of the company have jumped 8,104 per cent to Rs 98.45 from Rs 1.20 during the same period.
Rohit Ferro-Tech, Digjam, Stampede Capital (DVR), Jindal Photo, Brightcom Group, Tata Teleservices (Maharashtra), JITF Infralogistics, Jindal Poly Investment, Lloyds Steels, SEL Manufacturing, CG Power and Industrial Solutions, Prakash Steelage and Sintex Plastics have also soared between 2,000 per cent and 7,200 per cent.
Market watchers believe liquidity measures taken by the RBI and government, improvement in the pace of vaccination, fall in COVID cases, robust inflows by foreign institutional investors and entry of new retail investors supported the domestic equity market.
Janakiraman R, VP and portfolio manager, emerging markets equity-India, Franklin Templeton said, "A mix of structurally supportive factors including continued spending by the government, easy policy stance along with reform measures announced in the manufacturing, infrastructure, financial and social sectors augur well for the cyclical recovery of the economy. This upcycle can potentially last for 3-4 years."
He further added that the improved pace of vaccination and encouraging aggregate demand have also supported market sentiments over the past 20 months.
It appears that valuations have very little headroom to expand. Market movement over the next year will be heavily influenced by earnings growth. Interim corrections could lend a better footing to the long-term market rally going forward.
Hexa Tradex, Sintex Industries, Subex, Palred Technologies, Ankit Metal, Viji Finance, Trident, GTL, Mcleod Russel India, Omkar Speciality Chemicals, Digispice Technologies, ISMT, Parsvnath Developers and Jain Irrigation stood among other penny stocks which have also jumped by over 1,000 per cent since COVID lows.
While commenting on the key challenges for the Indian equity market going ahead, Joseph K Thomas, head of research, Emkay Wealth Management said, "There is no doubt that the rates globally will move up from current levels as inflation has already started moving up. So apart from rising inflation, tapering of liquidity measures are key challenges for the market apart from high valuation in some pockets of the Indian market. The reversal of liquidity may impact P/E expansion."
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