Retail investors find solace in penny stocks as largecaps consolidate

Retail-investor dominated penny stocks seem to have regained momentum, even as the surging crude prices begin to temper the optimism over corporate earnings and reignite inflation concerns.

Many small stocks including Vodafone Idea, Jaiprakash Power Ventures, Reliance Power, Hathway Cable and Datacom, Jaiprakash Associates, Media Matrix Worldwide and SEPC Ltd have rallied anywhere between 35 percent to 90 percent over the last three months. That compares with five to seven percent gains clocked by the benchmark Nifty 50 and the broader NSE 500 index during the same period.

Interestingly, barring five stocks, all companies in the sample have yielded positive returns over the last three months, with stocks like IFCI, GVK Power & Infrastructure, Unitech and Sarveshwar Foods more than doubling during the same period. Indeed, the sample comprises only those companies with minimum market capitalisation of Rs 500 crore and having a stock price, which is less than Rs 25. Further, the aggregate market capitalisation of these 44 small stocks in the sample has surged nearly 30 percent to Rs 1.9 lakh crore over the last three months.

To put this in perspective, about 20 percent of the Nifty 50 constituents are in the red since June 26, with stocks like UPL, Britannia Industries, Hindustan Unilever and HDFC Bank declining up to nine percent.

Shares of Vodafone Idea surged as much as seven percent in Tuesday’s trade. The stock, which has been trading at above Rs 10 for the last three weeks has more than doubled from its March lows. Vodafone, which commands close to Rs 60,000 crore market cap, along with Yes Bank account for 57 percent of the sample’s market capitalisation.

However, analysts remain cautious over investors’ frenzy over small stocks as majority of them have been reporting losses and are thinly traded on the bourses. Moreover, institutional holdings in these stocks are miniscule, making the exit cumbersome for investors.