recently one of my friends purchased birla TR on his broker's recommendation,
he also advised me saying that it will hit upper circuit ,
now therre is no trading in that stock and he is stuck with 500 shares
Thats the point in penny stock.....
Say the stock is of 1 rs now and your broker being a big shot have 1 lakh shares of it(not necessarily he bought but may be the company gifted or bought at low rate of 80 paise/share from someone who got it for 60 paise per share)
Now the broker is making 20k profit but he wants to exit at say even more handsome margin like say the share have to reach 1 rs 50 paise and he exits.
Now he wont wait for this to happen or check every half an hour .
He will give a buy recommendation for the share.Now seeing this your friend and may be 49 more people try to buy the stock. Say 10000 shares by each person so for 50 people.5lakhs shares volume increase...seeing this increase in volume furthur some more people will buy shares and 10 lakh volume...means high demand for share so price rises and it reaches the broker target he exits.
Even the penny company make huge amount(issue 10 -20 bonus shares on personal holdings and increase their own share holdings) and delist itself.so that they can start another nexus with same brokers.
Its always better to see whether the company have any fundamentals or not...
U never know same may happen with cals refinery..I see people invested 20-25k amount in it thinking even if reaches 10 rupees they will be a good lakhpati.But when i say them to invest in reliance power now they say that is the same stock which brought sensex down do u think we are an idiot.
At least u are assured even 20 years down the line u will get your money but that is not the case with cals.
I m not against investing in it.But if u invest think the amount u invested in it is the money u gave for charity and dont expect..If u get something well and good..But if it goes bad at least u wont have a sore heart