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C. J. Punnathara

Kochi , Sept. 28

"IN a bull run, it is the inexperienced investors who get trapped first and penny stocks are usually the first casualty of wild market fluctuations. These are shares of companies with no standing — financial or otherwise — and begin trading only during bull runs," Mr C. J. George, Managing Director of Geojit Financial Services Ltd, said.

In most bull runs, the prices of blue chips move up, which is followed by those of mid-caps and small-caps. If the market upsurge is sustained, several small investors get attracted by the action and returns in the stock market and become investors. By this time, the prices of sound companies would be high and new investors would start looking for low-priced shares.

To cater to the demand of this new breed of poor investors, several unscrupulous promoters and manipulators activate the penny stocks and begin trading in them, Mr George said.

Out of the 2,600 shares traded in the BSE today, there are 677 T-group shares and 179 Z group shares. The Z group comprises companies, which have failed to comply with listing norms, including failure to attend investor complaints and payment of listing fees. T-group shares are those that are considered extremely volatile. These two groups now constitute 33 per cent of the total shares traded in the BSE, he warned.

Another interesting factor in today's market is that the average number of shares traded is 2,600, up from around 2,000 shares traded a year ago and the prudent investor has to be careful about these 600 shares.

Sadly, it is the inexperienced investors who find these shares attractive only due to the low prices. With the retail investors buying into these stocks, the prices go up very fast and those who manipulated prices unload their shares. Ultimately, the poor investor holds these stocks at very high prices and will never be able to recover their money, Mr George warned.

In this background, Geojit has started a no-penny-stock campaign in all its 275 branches. Every contract note clearly says "Trade with caution: Beware of volatile price movements and penny stocks."

Moreover, all branches have prominent posters warning investors about the inherent dangers of penny stocks. Added to this, branch managers regularly interact with clients and advice them to keep away from these shares.

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