Penny stocks run

In a bull market speculators tend to turn penny wise and this is evident in the sudden interest in stocks of relatively unknown companies.

In the past one month, at least 20 stocks with ‘not-so’ inspiring background have climbed from below-par levels to achieve a ‘double-digit’ status. Analysts fear the movement may have been triggered by operator-driven activity and thus advise caution. In their view, investors, particularly retail, should carefully study company background and trading patterns before dealing in such shares.

ET tracked the movement of BSE-listed stocks across groups and found that many low-priced stocks have shot up to new highs, piggybacking on an euphoric Sensex. Brokers warn of getting carried away by the frenzy, especially when the gains are not supported by good fundamentals or any kind of development that would bring about a change in business prospects of companies.

Major gainers among the low-priced stocks include IEC Softwares, where the share price jumped 156% in over a month. The scrip, in fact, hit the 5% upper circuit on Wednesday when it closed at Rs 17.2.

The volumes, however, remained low with 300 to 27,645 shares changing hands during the period.

Yet the financials of IEC Softwares do not support the spurt in stock price. It posted a small net profit of Rs 8 lakh on sales of Rs 1.2 crore in the quarter ended June 30, 2007. The company, in fact, made a loss of Rs 30 lakh on a turnover of Rs 4.3 crore for the year ended March 31, 2007.

Media Matrix Worldwide (MMW) is another example where the share price has zoomed 155% over the past month to Rs 13.4. While the company has posted some profit in the past quarter and also in 2006-07, there has been no significant development for the share price to drive up. MMW posted a net profit of Rs 33 lakh on sales of Rs 8.1 crore in the past quarter.

The figures stood at Rs 20 lakh and Rs 22 crore, respectively, in 2006-07. The company board is meeting on October 10 to consider raising funds through a preferential allotment or any other route.

The share price of LN Polyesters has risen 113% to Rs 26.3 from Rs 12.3 a month ago. The rally is not backed by sound fundamentals as the company posted a loss of Rs 48 lakh on sales of Rs 6.8 crore for the April-June quarter. In 2006-07, it recorded a sharp fall in net profit at Rs 3 lakh from Rs 1.5 crore in the previous year.