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Tuesday, November 25, 2014

Multibagger Small Caps - SIP Returns @ 261% in 4 Years

Dear Reader,

This year has proven to be exceptionally well for mid cap and small cap companies. The BSE Mid Cap Index  is up by 52%  and the Small Cap Index is up by 73% since beginning of  2014, many small and mid cap stock prices have multiplied by 2 to 3 times or even more. Is the time to book profits?

Lets take a look at Small Cap Index graph of last 10 Years:

We would like to inform you that Mid Cap index is marginally up by 1% and Small Cap Index is still down by 20% from its Jan 2008 highs. However, Sensex is up by almost 35% over the same period and at a new life time high. We suggest our members to continue holding fundamentally strong companies as we expect small and mid cap companies will continue to outperform major indices - Sensex & Nifty during next 2 to 3 years.

We believe that this is just the beginning, the economy is expected to move to a 7% growth trajectory in next couple of years which will help small and mid cap companies to flourish much faster compared to large caps. However, correction or consolidation in stock prices in short term cannot be ruled out. With both earnings and balance sheets likely to improve, small and mid cap segment will continue to remain attractive over period of next 2 to 3 years. 

Power of Investing in Small Caps 

On 2 January 2004, Hawkins Cooker had a market cap of Rs 14.5 crore and its stock was at Rs 27.50. On 24th Sept'14 the stock price closed at Rs 3637.50 and the company's market cap is Rs 1,923 crore. Rs 1 lakh invested in Hawkins in Jan 2004 is worth Rs. 1 Crores and 31 lakhs today!

It has been one of the wealth creators in the Indian stock market which has given more than 50 percent annualized return to investors over the last 10 years. 

Lets take another example of little known company Camlin Fine Sciences which is our 10-Bagger stock. We identified this Hidden Gems 3 years back and recommended it to our Hidden Gems members at price of Rs. 6.05 (adjusted price after 2 splits - from share face value Rs. 10 to 2 and recently from Rs. 2 to 1, actual recommended price was Rs. 60) and today it’s at Rs. 60 giving absolute returns of 895%. Moreover, its a 30-Bagger stock for investors who invested in it 5 years back. Company was trading at Rs. 2 (split adjusted price) with market cap of merely 19 crores in Feb 2009, today market cap of the company is 574 crores.

Here is the brief about the company: 

Camlin Fine Sciences Ltd: Camlin Fine Sciences Ltd is one of the India's leading manufacturers and exporters of Bulk Drugs, Fine Chemicals and Food Grade products. The company manufactures active pharmaceutical ingredients (API's), food antioxidants and sweeteners. Company acquired subsidiary of Borregaard in March 2011 which was expected to help Camlin Fine Sciences in realizing better operating and profit margins in coming quarters. This acquisition ensured the easy availability of raw material Hydroquinone manufactured by Borregaard for Camlin Fine Sciences ltd. Company also introduced new products and continuously strengthening its marketing activities throughout Europe and USA. The scrip was trading at 4 X FY 2011-12 estimated earnings leaving good scope for stock price appreciation.

Camlin Fine Sciences Research Report: Click here to Download

Do you own such stocks which can give you similar returns in future?

The number of small-cap stocks is large and finding a quality stock that can give high returns over a long period is tough even for equity analysts. One reason is that such stocks usually have a short history and are not tracked by many analysts and brokerage houses. Then there are risks such as low liquidity, governance concerns and competition from larger players.

Scores of once small companies have over the years grown big, giving investors a 30-50 per cent annual return over 10-15 years and creating fortunes for investors. However, more often than not, we find ourselves at the wrong side of the fence and regret our inability to spot such stocks on time.

Those who wish to invest in small-cap stocks should do so only if they have a long investment horizon and tolerance for volatility. Small-cap stocks suffer the steepest falls in a bear market and rise the most in a bull market. An investor should stay invested for at least three-five years to allow their portfolio to gain from at least one bull run.

Benefits of Investing in Small Caps

1. Huge growth potential: The first and the most important advantage that a small cap stock gives you is their high growth potential. Since these are small companies they have great scope to rise as opposed to already large companies.

2. Low Valuations: Usually small cap stocks are available at lower valuations compared to mid & large caps. Hence, if you invest in good small cap companies at initial stage and wait for couple of years,  you will see price appreciation not only because of growth in top line and bottom line but also due to rerating which happens with increase in market capital of the company.

3. Early Entrance Advantage: Most of the fund house and institutions do not own small caps with low market cap due to less liquidity which make it difficult for them to own sufficient no. of shares. This gives retail investors an opportunity to be an early entrant to accumulate such companies shares. When company grows in market cap by delivering consistent growth and becomes more liquid, entry of fund houses and institutions push the share prices up giving maximum gains to early entrants.  

4. Under–Researched: Small cap stocks are often given the least attention by the analysts who are more interested in the large companies. Hence, they are often under - recognized and could be under-priced thus giving the investor the opportunity to benefit from these low prices.

5. Emerging Sectors: In a developing economy where there are several new business models and sectors emerging, the opportunity to pick new leaders can be hugely beneficial. Also the disruptive models in the new age is leading to more churn and faster growth amongst the nimble footed smaller companies. 

Concerns while Investing in Small Caps 

1. Risk: The first and the most important disadvantage a small cap stock is the high level of risk it exposes an investor to. If a small cap company has the potential to rise quickly, it even has the potential to fall. Owing to its small size, it may not be able to sustain itself thereby leading the investor into great loses. After all, the bigger the company, the harder it is for it to fall.

2. Volatility: Small cap stocks are also more volatile as compared to large cap stocks. This is mainly because they have limited reserves against hard times. Also, it in the event of an economic crisis or any change in the company administration could lead to investors dis-investing thereby leading to a fall in prices.

3. Liquidity: Since investing in small cap stocks is mainly a decision depending upon one’s ability to undertake risk, a small cap stock can often become illiquid. Hence, one shouldn’t depend upon them for an important life goal.

4. Lack of information: As opposed to a large cap company, the analysts do not spend enough time studying the small cap companies. Hence, there isn’t enough information available to the investor so that he can study the company and decide about it future prospects.

Saral Gyan team do take care of above concerns by doing indepth research and analysis of small cap companies before releasing research reports with buy recommendation. Its sincere efforts, dedication and passion of our equity analysts that 19 out of 30 Hidden Gems released by our equity analysts have given more than 100% returns to our members.  If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small companies - Hidden Gems

Investing systematically is a great way to build your investment portfolio. It is a simple and time tested approach for accumulation of wealth in a disciplined manner. Simply get some savings from your monthly income and invest in equities for long term. SIP not only allows you to save every month in a disciplined way but also help you ride through ups and downs of stock market.

You can start investing in a particular stock once in a month. Next month, same amount would be invested in another stock which at that point of time gives you good medium to long term investment opportunity. This could be an ideal choice for salaried employees as well as businessmen / entrepreneurs, as it will help you to invest in fundamentally strong small and mid cap companies to build a diversified portfolio of high quality small and mid cap stocks over a period of time to achieve wealth creation.

Invest some portion of your monthly income in good companies without  timing the stock market and you will definitely get rewarded in long run.

Just take care of Basic Principle of Investing in Equities:

1. Invest in stock market with a long term view (3 - 7 years or more).
2. Invest in companies which are fundamentally strong with scalable business.
3. Follow disciplined approach by Investing regularly in equities.
4. Build a diversified portfolio by investing in small & mid cap companies.
5. Avoid frequent buying / selling of stocks, Its trading not Investing!
6. Review performance of your holding companies at least once a year to decide whether to buy / sell or hold.

Lets review how SIP approach have benefited our Hidden Gems members during last 4 years. Below is the table which illustrates value of Rs. 10,000 invested (every month) in our recommended Hidden Gems (Unexplored Multibagger Small Cap Stocks) stock of each month vis a vis value of Rs. 10,000 invested in BSE Small Cap Index during last 4 years.

(Click on the image if not visible)
We are delighted to share that average returns of Saral Gyan Hidden Gems (30 stocks) during last 4 years is 261% compared to 55.2% of BSE Small Cap Index. Investment of Rs. 10,000 in Hidden Gems stock of each month during last 4 years not only allowed you to save Rs. 3 lakh but also appreciated your investment more than 3.5 times making your total Hidden Gems stocks portfolio of Rs. 10.8 lakh with overall profit of Rs. 7.8 lakh. However, if you would have invested the same amount in Small Cap Index, you would be sitting with total gains of Rs. 1.65 lakhs.

Total 21 Hidden Gems out of 30 during last 4 years have given more than 100% returns to our members, Moreover, there are total 14 stocks (as highlighted in yellow colour) which have given returns in the range of 200% to 1000%. We are hopeful that we will continue to hunt best Hidden Gems from universe of small caps by doing authentic, in-depth and unbiased research work and support our members to make educated investment decision.

Not everyone has the time and inclination to analyse stocks and be able to identify potential wealth creators. If that’s the case for you as well, don’t fret. Choose our services and invest in good quality stocks yourself, that outperform the benchmark consistently over a period of 5-10 years and put your money at work. The strategy remains the same — identifying wealth creators and investing in them for long term. 

Through Hidden Gems and Value Picks, we're providing you opportunities to invest in such small / mid caps stocks today. Infosys, Pantaloon, Dabur, Glenmark were the small cap stocks in past and today are the well known companies falling under mid and large cap space. 

Check out: Hidden Gems & Value Picks 2014 - Performance Update

The stocks we reveal through Hidden Gems & Value Picks are companies that are either under-researched or not covered by other stock brokers and research firms. We keep on updating our subscribers on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Subscribe to Hidden Gems & Value Picks and start investing systematically. Avail attractive discounts by subscribing to our combo packsclick here for details. You can subscribe online, simply click on Subscribe! link of the subscription service you would like to subscribe. In case you are not comfortable with online transaction, click here to know about our other payment options and bank details.

contact us in case of any queries, we will be delighted to assist you.

Wish you happy & safe Investing.


Team - Saral Gyan.