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Contact UsSmall cap stocks in India are companies with a market capitalization of 500 crores or less. By way of review, you calculate market capitalization or market cap by taking the number of outstanding shares and multiplying by the current per share price.
Some investors put the mark for small cap stocks at a lower figure, while others put it higher. There is no one figure everyone agrees is correct.
Risky Business
What most experts do agree on is that small cap stocks, especially those with market caps under Rs. 100 crore are risky investments.
We are not talking about penny stocks – those micro companies that trade off the Sensex for literally pennies per share. We are referring to the stocks of small companies you can buy and sell on a listed exchange.
Small Cap Stocks are Risky
• Big fish eat small fish in a competitive market. You can have a great idea and a great company, but a larger competitor can kill you.
• Market and/or economic reversals can be devastating to smaller companies that often lack the financial resources to hold on through tough times.
• Many small companies are started by people with a great idea, but no business experience. If they fail to learn how to run the business or refuse to turn the business over to professional managers, the company is at risk of failing due to poor management.
• Evaluating small cap companies is sometimes difficult due to the lack of information or historical data. Short operating histories make analysis seem more like guesswork.
What’s Good about Small Caps
Despite the risks associated with small cap stocks, there are some good reasons for considering adding them as a modest portion (usually no more than 5% - 15%) of your portfolio.
The first place you can start is the obvious: the most successful companies today started as small companies. Who knows where the next Infosys is coming from, but it will certainly have started out as a small company.
Here are some other good points about small cap stocks:
• It is easier to double the sales of a company doing Rs.20 million per year than it is to double the sales of a company doing Rs. 2 billion in sales. Rapid growth is easier for small cap stocks.
• Smaller companies can “fly under the radar” of intense market attention longer. This keeps the price from being bid up too high or knocked down too low. Most mutual funds, for instance, don’t invest in small cap stocks. (The exception, of course, would be funds that specialize in small cap stocks.)
• Small companies tend to be more nimble and react quicker to market and technological conditions. Small companies can exploit opportunities that larger companies can’t afford to chase because of their huge overhead.
What to Look For
How do you find a good small cap stock? It requires more work than investing in larger, better-followed companies since there may not be much information available.
Here are some Tips
• Invest in what you know. If you have expert knowledge or extensive experience in a particular industry or technology, this may be a good place to start looking. It is always important to understand what you invest in, but doubly so in small cap stocks.
• Avoid “bleeding edge” technology, because this is so risky on its own, when coupled with small companies becomes a complete gamble.
• Be realistic. The company has to have a chance to succeed, but if it has a huge debt load and no cash, what chance does it have?
• Be patient. Plant your seed and let it grow. Investing in small cap stocks is definitely a “buy and hold” strategy.
Are small cap stocks for you? If you are risk adverse, probably not. However, if you are up for some volatility and have a small portion of your portfolio you are willing to put at risk for a potential payoff, you may want to give them a careful look.
Equity analysts at Saral Gyan publish small cap stock research reports - Hidden Gems (Unexplored Multibagger Small Cap Stocks) every month. Team of equity analysts share authentic, unbiased and indepth research reports of fundamentally strong micro and small cap companies under Hidden Gems services.Other paid services include Value Picks & 15% @ 90 DAYS.
Currently, Hidden Gems annual subscription costs INR 3000 to our Indian subscribers and $ 70.00 to our subscribers abroad (US/UK, UAE, Qatar, Australia & Canada Subscribers).
Our Hidden Gems subscription charges will get revised effective 1st May 2011.
Revised charges for Hidden Gems annual subscription (12 monthly issues) effective 1st May 2011:
- INR 3750 - For Indian Subscribers
- $ 90.00 [~ 3750 + transaction & service charges, $ 1 @ 45 Rs] – For Abroad Subscribers
Note: Subscription charges of Value Picks & 15% & 90 DAYS remain unchanged effective 1st May 2011.
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Our recommended Hidden Gems (small cap stocks) have outperformed Small Cap Index by whopping 23% in last 7 months. As on date, average returns of our recommendation is +17.82% compared to negative returns of -4.43% of small cap index.
Below is the past performance of Hidden Gems recommended by our equity analyst team.
You can enjoy direct saving of 25% on annual subscription charges of Hidden Gems upto 30th April. Subscribe today and start investing small portion of your in fundamentally strong small cap stocks!
Click here to know more about Hidden Gems subscription charges and payment facilities.
Wish you Happy & Safe Investing!
Saral Gyan Team.
Saral Gyan Capital Services.
