Small-cap stocks are the stocks of publicly-listed companies whose total market value or market capitalisation is less than Rs 5,000 crore. Small-cap stocks are generally marked by low valuations and exhibit a high potential for growth in the future. These stocks may be ideal for investors with a high-risk appetite and expecting high returns.As per market regulator SEBI, small cap companies are ranked 251st and below in terms of their market cap. Shares of these companies tend to be highly volatile and risky compared to that of large cap and mid cap companies.
The features are as described below:
Here are the most significant advantages of investing in Small Cap stocks:
Small-cap, medium-cap, and large-cap stocks are the stock categories distinguished by the market capitalization of companies. Small-cap stocks have historically outperformed large-cap stocks in the long run but carry high risk. When the markets start exhibiting a bearish trend, small-cap stocks may be worth considering for investors with a long-term investment horizon.
In India, NSE and BSE have a benchmark small-cap index known as the Nifty Small Cap 100 and the BSE Smallcap index, respectively, that tracks the performance of small-cap stocks. In this article, we will explore the concept of small-cap stocks, their features, and the benefits of investing in small-cap stocks.
These are some of the reasons why investors are attracted to buying small-cap stocks:
Below is the list of small-cap stocks:
|1||Thyrocare Technologies Ltd.||Healthcare|
|3||Bajaj Consumer Care||FMCG|
|4||Delta Corp Ltd.||Services|
|5||VST Industries||Consumer Goods|
|6||Indian Energy Exchange||Power Generation|
|9||JK Paper Ltd.||Paper|
|10||Mishra Dhatu Nigam Ltd.||Paper|
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Nifty small-cap in India measures the performance of the small-cap stocks of markets. Nifty small-cap 50, Nifty small-cap 100, and Nifty small-cap 250 are part of it.
The Nifty small-cap 100 index is meant to show the behavior and performance of the market segment capitalized on a smaller level. The Nifty 100 Index consists of 100 exchange-listed companies whose stocks can be traded on markets.
The major drawbacks of investing in small-cap stocks are:
While investing in Small-cap stocks, take note of a few things.
The below-listed investment avenues that an investor might like to consider or prefer over the small-cap stocks.
The investors are free to choose the investment products that suit their risk-return pattern. They can adjust them regularly if the portfolio fails to give expected returns. Small-cap companies (with a small capital base) have good growth potential; hence, with time, you can have good returns from the Small Cap stocks.
If you want to invest in other investment avenues like mutual funds, you could invest in Navi Mutual Fund. Navi is home to a host of low-cost index funds with low tracking error.
Disclaimer: Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing.
Ans: Depending upon each investor’s preference, they can be included in the investment portfolio by assessing the factors such as risk tolerance, financial goals, time horizon, etc. As they have growth potential, the initial period might be full of risks but capable of yielding higher returns simultaneously.
Ans: When it’s the time of market correction, the investors should buy small-cap stocks. Because when the markets are performing well, the price of small-cap stocks goes high, and during recessionary periods, they fall quite rapidly.
Ans: They give higher returns in the long run, but they carry higher risk as compared to large-cap companies’ stocks. They are highly volatile and serve those who prefer higher risks.
Ans: The BSE and NSE index lists the small-cap stocks on the stock exchange market. You can also assess the high ROE, low PE ratio, and low debt to equity as good determinants of making choices.
Ans: Yes, they are. They are affected by the fluctuations that take place in the markets. They lack broad financial resources to digest the disruptions in prices and hence get more affected compared to large-cap stocks.
Ans: A high up-cycle during a financial bubble can lead to exceptional performance for a small cap stock. So, it is important to find the right market cycle for a particular company before investing in small cap shares.
Before you go…
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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