Penny Stocks: Top Low Price Small Cap Indian Stocks. How to Screen Them…[2021]

SLNamePrice (Rs.)ROE-3Y (%)RoCE-3Y (%)EPS Growth (3Y) %GMR Score
1Zeal Aqua8.3513.2113.7552.849.16
2Surat Textile9.59.2710.9525.7648.06
4Prismx Global Venture10.551.191.7910.1543.8
6Kanishk Steel Ind20.65613.4459.6735.03
7Croissance Ltd.8.861.90.7198.9534.55
8Basant Agro12.36.147.9819.4733.25
9Evexia Lifecare13.662.73.713.731.02

One Sunday afternoon, I met one of my friends for lunch. He is new but an enthusiastic stock investor. He likes low-priced penny stocks. (Check here for the penny stocks list).

He is that Gujju who has that uncanny knack for picking stocks at the right times. He does it time and again. As a result, he has also upped his confidence.

In markets like these (post-COVID), where the general tendency of the price is to go up, overconfidence may be risky. Maybe not now, but this mindset may lead to losses in a normal market scenario.

I’d a nice chat with him about how he picks his penny stocks. Not surprisingly, apart from the few financial ratios he mentioned, his study lacked fundamental analysis.

What he was doing was trading. This is not bad. But it becomes a problem when one thinks he is investing fundamentally, but in reality, he is trading.

This is common, generally, only day traders get attracted to penny stocks. But there is space for investors as well. Remember, even Apple Inc, Google, Microsoft were penny stocks once.

How my friend screen the penny stocks?


He shared with me his stock screening criteria. He told me that he refers BSE 500 index. In this list, he screens those stocks which has a low price (like below Rs.50).

He then checks their fundamentals in moneycontrol.

He had some 10-15 parameters based on which he checks if his screened stocks are worth a buy or not.

More often than not he is able to pick reasonably good stock this way.

[P.Note: I also have my stock analysis worksheet which I use to check the business fundamentals of my stocks. It analyse a stock in less than 15 minutes.]

Why I wrote this post…

It was after meeting my friend that I got a clue of re-writing this blog post all together. Why?

Because I could see its requirement.

I thought that it will be nice if I can explain my understanding of ‘low price penny stock‘ to my readers.

It will make sense to lot of people (like my friend).

So let’s start from the very basic…

What are Penny Stocks?

Indian Penny Stocks with Strong Fundamentals - What are Penny Stocks

Penny stocks are mainly characterised by its low market price (below Rs.50 per share). But this is not the only criteria. These stocks are also distinguished by their low market capitalisation.

Penny stocks are necessarily of “small cap” in nature. Hence they will never appear in stock index like “S&P BSE 500”.

Fallacy of my friend…

My friend probably did not want to buy penny stocks. Probably this is why he was referring to BSE 500 Index.

But why he was picking only ‘low price’ stocks from the list? I feel this is due to a misleading assumption. What is the assumption?

Wrong assumption: Stocks of BSE 500 Index has decent fundamentals. Any stock in BSE 500 index, which is trading at low price, must be undervalued.

In some cases this may be true, but in most cases it will not point towards right stocks.

Moreover, by shortlisting only low price stocks, my friend is actually missing out on other stocks which though has high market price, but may still be undervalued.

What my friend must do?

Instead of focusing only on BSE-500 stocks, it is necessary to look beyond. Why? Because by concentrating only on top 500 stocks, he is actually missing a huge opportunity. How?

Indian Penny Stocks with Strong Fundamentals - market Cap Chart

There are about 3,800+ Stocks listed in National Stock Exchange (NSE). In BSE this number is 5,000+ nos.

If we are concentrating only on Top 500 Stocks (like BSE 500 Index), we are actually covering only 13.2% stocks of the total market.

Most of the investors buy/sell within these Top 500 stocks. Hence there are more chances of finding these stocks at overvalued price levels.

The other 86.8% stocks (beyond BSE 500) are less traded. Hence offer both high risk and high opportunity.

  • Why Risk: Because there are chances that fundamentals of these stocks may be weak.
  • Why Opportunity: Because if the business is good, it is here that its stocks are more likely to trade at undervalued levels (more than in BSE 500 index).

Define Low Price?

No matter how low is the price, if the underlying company is bad, such shares are worth avoiding. Let’s understand this with an example.

Example: A stock which is trading at Rs.100 can be cheaper than a stock trading at Rs 10. How?

Suppose there are two stocks A & B trading in stock market.

  • Market price: “A’s” price is Rs.100 and that of B is Rs.10.
  • Earning Per Share (EPS): “A” has a EPS of Rs.10 per share. Similarly “B” has a EPS of Rs.0.5 per share.
  • EPS Growth: “A” displays an EPS growth in last 5 years as 12% p.a. Similarly “B” has EPS growth in last 5 years as 11% p.a.

Based on the above data, the stocks “A” & “B” are displaying the following price multiples:

  • Price Earning Ratio (P/E): A’s PE ratio is 10 (100/10), and that of B is 20 (10/0.5). This way Stock A looks undervalued.
  • PEG Ratio: A’s PEG ratio is 0.84 (10/12), and that of B is 1.81 (20/11). Here as well, A looks undervalued. Read more about PE and PEG ratio here.

Even though the market price of A is higher than B, but it is still a better buy than B. Why? Because it price multiples suggests that.

Filters for Penny Stocks

Good Low Price Shares to Buy in India -1
  • #1. Filter: Low market price.
  • #2. Filter: Strong underlying Business.
  • #3. Filter: Undervalued price.

Why first attention is on “low market price”? Because high price of stocks makes it unreachable for common men. Lets see examples of few high price shares:

  • MRF Ltd: Rs.64,800 per share.
  • Page Industries: Rs.29,600 per share.
  • Eicher Motors: Rs.21,400 per share.

These are stocks of great business, right? But even if they are trading at undervalued price levels, still a common man may not be able to buy even one share of them.

Why it is so? Because of their high current market price.

So where this understanding lead us to? The lower will be the market price of stocks, common men will like it more (like penny stocks)

Now we are ready to know ‘how to evaluate the underlying business’ of penny stocks. We will also know how to check if its shares are trading at ‘undervalued price levels‘ or not. Let’s read further…

1. How to Decode Strong Business?

Let me rephrase my question. How to know if a business is good or not? From point of view of investors, following will highlight if a business is good or not:

  1. Sales Growth: Sales is growing fast enough? How to know? Check last 5 years sales data in Profit & Loss Account. Then calculate sales growth rate (5Y-CAGR). Sales growth matching inflation rate is considered moderate.
  2. Profit Growth: Profit is growing fast enough? How to know? Check last 5 years net profit (PAT) data in Profit & Loss Account. Then calculate PAT growth rate (5Y-CAGR). PAT growth matching inflation rate is considered good. Read more about analysing profit margins.
  3. EPS Growth: EPS is growing fast enough? How to know? Check last 5 years EPS data in Profit & Loss Account. Then calculate EPS growth rate (5Y-CAGR). EPS growth more than inflation rate is considered great. Comparing EPS growth with the competitors will also be a good idea. Read more about high EPS and its growth.
  4. ROE: Is the company profitable enough for its investors? How to know? Check its ROE history, and if it is growing or not. First, calculate the ROE ( = PAT / Net Worth). A good company will either maintain its ROE, or improve it, over a period of time.  Calculate last 5 years ROE. Then calculate ROE growth rate (5Y-CAGR).Even if the ROE has increased marginally, it is outstanding.
  5. Debt: Is the company relying too much on debt? How to know it. Check its Debt/Equity ratio history, and if it is growing or not. First, calculate the Debt/Equity ratio ( = Debt / Net Worth). A good company will keep reducing its debt dependency over time. It means, with time, its Debt/Equity ratio shall fall. Calculate last 5 years D/E ratio. Then calculate D/E growth rate (5Y-CAGR). D/E growth in negative means, the company is doing good.

These are few common check-points using which we can judge the business fundamentals of a company. But if you would like to do a more detailed stock analysis, do check my stock analysis worksheet. This worksheet will help you to estimate the following for your stocks:

  • Free cash flow. 
  • Intrinsic value. 
  • Overall grading for stock. 
Good Low Price Shares to Buy in India -2

2. How To Verify Undervaluation of Stock?

We can use three financial ratios which will highlight if the current price of stock is undervalued or not.

  • P/E ratio: This is price to earning ratio. P/E ratio can be calculated by this formula ( =Price / EPS). Calculating P/E ratio is easy. But I will suggest a better trick here. Calculate last 5 years P/E ratio and plot a curve. How to do it? Prepare this table first. Check the PE trend in last 5 years. How to do it? By plotting a curve. If P/E is falling, it is hinting at undervaluation, and vice versa.
YearPrice (P)EPS (E)P/E
Mar 18934.8045.1720.70
Mar 171,028.6544.1323.31
Mar 16380.9032.5511.70
Mar 15325.5020.3516.00
Mar 14130.7521.746.01
Good Low Price Shares to Buy in India -3
  • PEG ratio: This is ratio between PE and “stock’s potential future growth rate”. P/E ratio can be calculated by this formula ( =PE / EPS growth rate). PEG is a very useful financial ratio for estimating price valuation of a stock. PEG less than 1, is a sign that the stock is undervalued. A stock with high PE, but low PEG (<1) is good. A stock with low PE, but high PEG (>1) is not good. Read more about PEG ratio of stocks here…
  • Dividend Yield (DY): This is the ratio between dividend per share and price. DY ratio can be calculated by this formula ( = Dividend per share / price). Dividend yield is a very reliable “value indicator”. Why? Because a stock which will pass this test, will be undervalued for sure. How to do  this analysis? Again we will rely on a 5 years trend, instead of one year data. Calculate last 5 years dividend yield, and plot a curve. Rising dividend yield is a sign that the share price is moving towards undervaluation. Read more about dividend paying stocks here.
YearPriceDividend Per ShareDividend Yield
Mar 18934.8015.51.66%
Mar 171,028.65151.46%
Mar 16380.90102.63%
Mar 15325.5072.15%
Mar 14130.757.55.74%
Good Low Price Shares to Buy in India -4


I once read an article on “penny stocks for long term investors“. The writer was completely biased against penny stocks. Probably he was looking at penny stocks just as a “trading option”.

But for me, penny stocks can also be a good long term investment. Why? Because the growth potential of a good penny stock far exceeds its large cap counterparts.

So how to go about investing in penny stocks? I have mentioned my filters for penny stock in the article above, but there is something more I would like to add here.

There is a difference between large cap and small cap stocks. Large cap stocks are ones which has a proven reputation. But small cap penny stocks has still not gone through as much scrutiny.

Hence I follow this strategy for myself in dealing with penny stocks. I use my filters to identify 2/3 penny stocks every 6 months. But I do not go ahead and buy them instantly.

I add them to my watch list, and keep a track of them for at least a month. During this time, I try to read as much as possible about them. I use “Google Alerts” to receive notifications about them in my inbox.

Once I start feeling more confident about them, I go ahead and buy.

Read More: How I’ll do day trading?

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Hi. I’m Mani, I’m an Engineering graduate who in pursuit of financial independence, has converted into a full time blogger. After working in the corporate world for almost 16+ years, I bid it more

43 thoughts on “Penny Stocks: Top Low Price Small Cap Indian Stocks. How to Screen Them…[2021]”

  1. Hey i am novice to the stock and this article helped me alot to gather information about penny stock but as you got a gujju friend . i need a one as well to whom i would ask a questions about stock as there is lot of confusion in my mind . With one i can exchange my ideas .

  2. Very nice information shared by you to understand basics and important for Share Trading
    Hope you share regular updates on this blog.
    Thx bro …to help ppl

  3. Very helpful & useful information for beginners.i have read lots of information about stocks but I got this link very helpful for me.
    Thanks brother you are good person

  4. Penny is not your usual penny stock picking website. We are a team of analysts and investors in the field of selecting penny stock picks. We have gotten used to seperating the ordinary from the extraordinary when it comes to the stock market, especially when it comes to researching and reviewing penny stocks trading on the OTC Market and Pink-Sheets exchanges.

  5. Sir

    These shares are very attractive and i will like to buys those share for a long term investment.Can you advise the holding period and the profit margin for these shares

    Arun Mathew

  6. Hi,
    For a beginner i always feel long term trading is a safe path, but your article about low cost penny stock forcing me to change my opinion…. please do post such article .

  7. Hello
    I have just now subscribed to your Excel stock analysis chart. Can you please mail me the list of best penny stocks 2019 posted in your blog.

    1. Krishna kumar Das

      Sir,I have not entered Indian share market till now but continuously studying different aspects of Indian Share market for about two months.The concept given you(Mani sir)under the topic..list of good low price shares to buy in India(Get money rich)is very clear cut,attractive n deeply seated in mind .Sir,pl.let me inform…as a Nepalese citizen can I be able to get registration in Indian share market. If yes then how?.

      1. I am not sure, but I think investing directly in Indian stocks may not be possible for a Nepalese citizen. But investing in equity through mutual funds route may be possible. I will suggest you to check this link…Thanks for asking.

    2. i am using Balrampurchini Mills Ltd. share for intraday and long term holdings. could i get an advice about this share for intraday and long term holding

    3. very useful and informative article.
      request to make some alignment setting for making this article in pdf file and printing the same.

      1. Thanks for your comment. Regarding print setting, I think you should get your system’s print set-up checked. Other way is to copy the content, paste it in MS Word and you are good to go. Thanks again.

    4. Dear Sir,
      The Market Price and ‘valuation price’ of the 10 stocks is the same. I request for a confirmation, please – as it seems difficult to believe that the market price and price valuation can match exactly. Thank you and with best warm regards . Shaukat Ali

      1. In both the tables, “market price” of stock has been shown.
        With respect to the market price, stock’s price valuation has been indicated using PE, PEG & D.Yield.

      2. I am using zerodha and I tried to purchase Unitech for intraday trading but zerodha’s RMS department rejected my order. Zerodha’s RMS department doesn’t allow me to purchase Unitech for intraday trading or any other penny stocks. Do you know any online broker that will allow me to purchase penny stocks for day trading.

        1. You can not buy the shares people not want to sell. Suppose you wake in morning and go to nearest milk shop and the shop keeper don’t want to sell you milk. It is not because he don’t want profit but the all milk have been sold to perticular cutomers and no one os selling back

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