What are cheap stocks, and how are they different from expensive stocks?

The best penny stocks are more volatile and have lower liquidity as compared to expensive stocks.

How do I find the best Indian cheap stocks to invest in?

Investors can find many cheap Indian stocks to invest in via Admiral Markets, a leading crypto, stock, and forex trading platform.

What factors should I consider before investing in Indian cheap stocks?

Before looking into the best cheap stocks to buy in India today, you should always check their price-to-earnings ratio, debt-to-equity ratio, dividend yield, shareholding pattern, and volatility.

Can I make a significant profit by investing in Indian cheap stocks?

Investors have made huge gains by investing in cheap stocks because some of these stocks gain a wider audience and explode when they expand their businesses.

How much money should I invest in cheap Indian stocks?

It is advised that investors should always diversify their portfolio and not invest their entire net worth in cheap Indian stocks.

Are there any risks associated with investing in Indian cheap stocks?

Yes, there are several risks associated with investing in Indian cheap stocks like high volatility and value traps. Therefore, while investing in such stocks, investors should always diversify their portfolio, set stop-loss orders, and avoid emotional investing.

How often should I review my Indian cheap stock portfolio?

Cheap stocks have relatively higher volatility and investors are advised to regularly check the performance of the stock as well as the company.

Should I invest in Indian cheap stocks for the short-term or long-term?

Investors can use online brokerage platforms like AvaTrade to invest in cheap Indian stocks.

Are there any tax implications to consider when investing in Indian cheap stocks?

Indian investors are subjected to a 20% tax rate on profits gained from investing in the best penny stocks.

How to Buy the Best Cheap Indian Stocks

Factors to Consider When Choosing Cheap Stocks

stock trading robot represented in mythological form Before choosing a platform and investing in cheaper stocks, it is very important for investors to do thorough research. As explained above, penny stocks pose a greater risk to investors and while providing greater returns, they can deal greater losses to investors as well.

According to our research, there are many indications and financial details that investors should consider before putting their money in penny stocks:

Price-to-earnings ratio:

The price-to-earnings ratio or P/E ratio is the ratio of share price of a stock to its earnings per share (EPS) and is one of the most popular metrics to define the profitability of the company that you are interested in investing in and can be used to compare the company’s past, present, and projected performance. Therefore, P/E ratio can be calculated on the basis of trailing (backward-looking) or forward (projected) basis.

A higher P/E ratio confirms that the company is overvalued or that investors are expecting high growth rates in the future. A company that is not making any profit has no P/E ratio.

The formula for P/E ratio is simple:

P/E ratio =

So, to calculate the ratio, simply divide the current stock price by EPS. However, this results in two types of P/E ratios, i.e., forward and trailing twelve months (TTE) P/E ratios.

The TTE P/E ratio is calculated by dividing the current share price by the last 4 quarterly EPS which are mentioned in the financial results of a company every quarter. Meanwhile, the Forward P/E ratio is calculated dividing the share price by the projected EPS over the next 4 quarters, contained in the company’s annual filings.

Debt-to-equity ratio:

The debt-to-equity ratio, commonly called D/E ratio, is very crucial for measuring a company’s financial leverage and is calculated by dividing its total liabilities by its shareholders. D/E ratio is a specific type of gearing ratio that determines how much debt a company is using to fund operations rather than to use its own resources.

D/E ratios differ by industry and are most useful for comparing a company to its direct competitors or tracking variations in its dependence on debt over time. A higher D/E ratio among companies of a similar size indicates greater risk, whereas an exceptionally low one might suggest that a company is not using debt financing for expansion.

This important metric in corporate finance is simply calculated as:

D/E ratio =

The information required to calculate D/E ratio can be found on the company’s balance sheet. The amount of shareholder equity is calculated by subtracting the value of liabilities from the value of total assets on the balance sheet, which is a rearranged representation of the following equation:

Assets = Liabilities + Shareholder Equity

Notably, investors usually modify the D/E ratio to take only long-term debt into account as it carries more risk than short-term obligations.

Dividend yield:

The dividend yield, displayed as a percentage, displays how much a company pays to its shareholders each year for owning a share of its stock dividend relative to its current stock price. This is a financial ratio that estimates the dividend-only return of a stock investment.

The dividend yields for companies in the consumer products and utility industries tend to be higher than others. However, it is important for investors to understand that higher dividend yields do not always suggest rewarding investment opportunities as the dividend yield of a stock may be elevated due to a declining stock price.

Here is the formula for dividend yield:

formula for P/E ratio

The dividend yield is commonly calculated from the company’s last year’s financial report. This is valid in the initial months after the company releases its annual report, but the more time has passed since the release of the annual report, the less useful this information is to investors.

Alternatively, investors can also choose to add the last four quarters’ dividends, which will include the trailing 12 months’ dividend data. Though one can use the trailing dividend number, it can make the yield excessively high or low if the dividend has recently been changed.

Shareholding Pattern:

The shareholding pattern provides insight into how a company’s shares are allocated among different entities. These provide investors with information about the financial health of a company. It provides investors with information about a company’s financial health and refers to its stock’s shareholding percentage across different classes of investors.

Indian woman on a futuristic background

Since shareholding patterns reflect a company’s share ownership structure, investors should check this factor before buying any stock. For instance, promoters, which have a huge influence on a company, may hold senior executive positions and have a major controlling stake in it.

Volatility

Volatility, a statistical measure of the dispersion of returns for a given asset, represents how large its prices swing around the mean price. It often refers to the degree of risk or uncertainty associated with the size of changes in a stock’s value.

Generally, volatile stocks are considered riskier than less volatile ones because the former’s price is expected to be less predictable while the latter tends to be more steady.

Volatility is often measured using either the variance or standard deviation (square root of the variance) between returns from that same stock. Since volatility describes fluctuations over a particular time period, the standard deviation is simply multiplied by the square root of the same number of periods.

Volatility (v) = σ√T

where v, σ, and T represent volatility over some time interval, standard deviation of returns, and number of periods in the time horizon, respectively.

Best Cheap Stocks to Buy in India

YES Bank (YESBANK)

YES Bank is one of the leading banking companies in India which lost the confidence of its customers a few years ago as it was unable to raise money which led to potential loan losses and as a result, investors invoked bond covenants, which was followed bya withdrawal of deposits by customers.

However, a historic Yes Bank Reconstruction Scheme 2020 initiated by other major banks in India was created and investors’ confidence in the bank was reinstated. Rana Kapoor, co-founder and previous CEO of the bank was fired as a result, and he was arrested in connection with a INR 466 crore money laundering case.

On the other hand, YES Bank is now a subsidiary of the State Bank of India (SBI) which has a 30% stake in the banking institution. On 21 February 2023, Yes Bank issued 2,13,650 equity shares to its employees under the company ESOP plan.

The price of the YESBANK share is currently INR 15 ($0.18) and is one of the best penny stocks with potential to perform better in the future under SBI. The bank posted a revenue of INR 22,423 crore ($2.8 billion) in 2022.

Bank of Maharashtra (MAHABANK)

statue of Indian woman The Bank of Maharashtra (MAHABANK) stock is currently valued at INR 25 ($0.30). It is a central public sector bank under the ownership of the Ministry of Finance, Government of India. As of March 2022, the bank had 29 million customers and also has the largest network of branches of any central public sector undertakings in the state of Maharashtra.

The bank posted a revenue of INR 13,144.67 crore ($1.6 billion) in 2020 while the revenue in 2022 stood around INR 775 crore ($93 million) which was up 138.76% from 2021. Despite the drop in revenue as compared to 2020, the banking institution has performed better in 2022 and investors can expect better performance from the penny stock in the coming days.

Central Bank of India (CENTRALBK)

The Central Bank of India is a popular public sector bank based in Mumbai but despite its name, it is not the central bank of the country. The actual central bank is the Reserve Bank of India. With clever wordplay, the banking institution was established on 21 December 1911 and is the first commercial Indian bank completely owned and managed by Indians.

The bank has been around for more than a hundred years and has survived two world wars and shares a strong history with India. The price of the CENTRALBK stock, which is one of the best cheap stocks to buy in India, is around INR 24 ($0.29) and was priced above INR $120 a few years ago. It is clear that the stock has potential.

On its 108th Foundation Day, the Central Bank of India launched its first step towards robotic banking, a robot named “MEDHA” and is one of twelve public sector banks in India that was recapitalised in 2009.

A revenue of INR 25,897.44 crore ($3.2 billion) was posted by the Central Bank of India in 2021 and the bank’s net profit for the quarter ending December 2022 increased by 64% to Rs 458 crore ($54.96 million) year-on-year, making it one of the best cheap stocks to buy in India today.

NHPC

NHPC, previously known as the National Hydroelectric Power Corporation, is an Indian government hydropower board under the ownership of the Ministry of Power, Government of India that was incorporated in the year 1975. Currently, NHPC is a Mini Ratna Category-I Enterprise of the Govt. of India with an authorized share capital of ₹150,000 Million ($18,17,289).

The company was listed publicly in 2009 and India and State Governments have 74.51% share as its promoter while the rest 25.49% is public shareholding. According to official filings, the revenue posted by NHPC in 2021 was INR 9,648 crore ($1.2 billion) while in 2022, the company posted a 12.59% decline in its consolidated net profit to INR 775.99 crore ($93 million) for the December 2022 quarter, mainly due to higher expenses.

Since NHPC is a government-owned company and a huge shift in hydroelectric sources of energy has been witnessed recently, it is certainly possible to witness promising performance from the NHPC stock and is therefore, one of the best penny stocks. The current price of the stock is INR 41.80 ($0.5) which is significantly up from the price of INR 15.10 in March 2020.

Indian Railway Finance Corporation (IRFC)

The Indian Railway Finance Corporation (IRFC) is an India-based financing arm of the Indian Railways and operates through the Leasing and Finance segment. The Government of India owns a majority stake in the company, while the Ministry of Railways has the administrative control.

The current price of one of the best penny stocks, IRFC, is around INR 27 ($0.33) and the company posted a revenue of INR 13,823.45 crore ($1.7 billion) in 2020, Interestingly, the net profit increased by 2.48% YoY to INR 1633.45 crore ($206 million) in the quarter that ended in December 2022 from INR 1593.91 crore ($201 million) in the quarter that ended in December 2021.

Tutorial: How to Invest in Cheap Indian Stocks Online

Investing in affordable Indian stocks has never been easier, thanks to platforms like AvaTrade. With its user-friendly interface and a wide range of trading tools, AvaTrade provides a seamless experience for both beginners and seasoned investors. Follow this step-by-step guide to start your journey with AvaTrade:

Step 1: Register on the AvaTrade Platform

Visit the AvaTrade Website:
Navigate to the official AvaTrade site and click on the “Register” or “Sign Up” button.
Enter Your Details:
- Provide your email address or mobile number.
- Create a secure password.
  If you’re new to AvaTrade, you’ll need to complete a simple registration process.
Complete the Registration Form:
- Fill in your full name.
- Enter your country of residence and contact details.
- Provide other personal details such as your date of birth.

Step 2: Confirm Your Account

Verify Your Email:
After submitting the registration form, AvaTrade will send a verification link to your registered email address. Open your email and click the link to confirm your account.
Mobile Verification (Optional):
Depending on your location, AvaTrade may send a verification code to your mobile number. Enter the code on the website to complete this step.

Step 3: Activate Your Wallet

Set Up Your Trading Profile:
- Select your client type (e.g., individual or corporate).
- Choose the country of residence for your trading account.
Provide Additional Details:
AvaTrade requires some basic financial information to comply with regulatory standards:
- Employment Status
- Annual Income
- Trading Experience
Submit Identification Documents:
Upload your Aadhaar card, PAN card, or any other government-issued ID for identity verification. You’ll also need to provide proof of address, such as a recent utility bill or bank statement.

Step 4: Fund Your Account

Once your account is verified, it’s time to activate your wallet by depositing funds. AvaTrade offers multiple payment options:

Bank Transfers
Credit/Debit Cards
E-wallets (like Skrill or Neteller)

Minimum deposit requirements are low, making AvaTrade accessible for investors of all levels.

Step 5: Start Trading Cheap Indian Stocks

With your account set up and funded, you can now explore AvaTrade’s platform. Use its intuitive interface to:

Search for Affordable Indian Stocks: Find stocks with growth potential at lower price points.
Place Orders: Choose from various order types like market, limit, or stop-loss orders.
Analyse Stock Performance: Leverage AvaTrade’s advanced charting tools and market indicators.

Step 6: Monitor and Optimise Your Portfolio

AvaTrade’s platform allows you to track your investments in real-time. Use the educational resources, including tutorials and webinars, to refine your strategy and stay updated on market trends.

Tips for Investing in Cheap Stocks

As some of the best cheap stocks to buy in India are highly volatile with low liquidity, they come with higher risks and inherently speculative nature. For instance, they are subject to the manipulation by the stock promoters and many trap you in pump and dump schemes.

Moreover, investors often get tempted by the illusion of easy exponential growth from value traps, which are stocks that look enticingly cheap but are actually poor investments.

Therefore, it is necessary for investors to conduct thorough research before investing in cheap stocks. Here are some of tips for making actual profits with cheap stocks without subjecting oneself in such risky situations:

Diversify your portfolio: Investment diversification is crucial because the risk/reward ratio of all the best penny stocks can be considerably higher than that of large-cap stocks.
Set stop-loss orders: In cases of extreme volatility, a stop-loss helps investors limit their loss on a stock position.
Avoid emotional investing: When a stock makes an unfavourable move, investors should acknowledge and understand emotional investment psychology and avoid taking impulsive decisions.
Buy companies with strong balance sheets: As many of cheap stocks are still in the early stages of development, investors should invest in companies with strong balance sheets and 50% or lower long-term debt (LTD) of shareholder equity. Such companies provide the best cheap stocks to buy in India today.

Harnessing the Power of Dividend Stocks for Lasting Financial Growth

young Indian woman buying cheap Indian stocks at night using a laptop - artwork The best dividend stocks in India provide investors with a reliable source of income by paying out a portion of a company’s earnings periodically. These stocks form a vital element in any well-balanced investment portfolio, ensuring that investors enjoy a combination of growth and regular income.

The allure of high-yield dividend stocks lies in their capacity to contribute to long-term wealth accumulation while also generating a steady flow of passive income. This dual benefit helps protect investors from market fluctuations and offers the flexibility to reinvest or utilize the returns as desired. To make informed decisions, investors should assess dividend stocks based on key factors such as the dividend yield, payout ratio, and the company’s history of dividend payments, financial robustness, and growth prospects. By prudently selecting and incorporating dividend stocks into their investment strategy, investors can achieve greater diversification and long-term financial stability.

Whilst penny stock companies offering dividends are scarce, some start-ups are incentivised to offer attractive dividend packages to attract series A investors. If successful, these could pay out significant returns in the long-term, in some cases even providing sufficient passive income to retire on.

Profit at a Discount: Best Cheap Indian Stocks12-min read

The Best Cheap Indian Stocks for Low-Risk/High-Reward Trading

In This Guide:

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Key Factors to Consider When Choosing a Broker for Affordable Indian Stocks

Top Broker Options for Affordable Indian Stocks

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