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Showing posts with label BSE Small Cap Index. Show all posts
Showing posts with label BSE Small Cap Index. Show all posts

Thursday, September 19, 2019

2019 - A Year of Opportunities to Create HUGE Wealth

Dear Reader,

If you were investing in small cap stocks in the year like 2016 and 2017 and stopped investing now due to recent carnage in broader markets, believe us you are making a bigger mistake. Do not allow your emotions to take control of your equity investment decisions, instead inculcate habit of investing in discipline manner.

Small caps being most volatile tend to offer best investing opportunities during turbulent times. Retail investors usually make mistake by buying stocks at higher levels due to greed factor and later exit due to panic and fear of further erosion of capital. This phase has happened earlier also and good quality small and mid caps have always bounced back, not only recovering all losses but also delivering much higher returns from previous highs. Good sentiments as well as bad sentiments do not last forever.

If you analyse BSE Small Cap Index YoY returns, you will realise that small cap index not only recovered but also delivered astonishing returns in short span of time once tide turns favourable. In last 16 years, small cap index delivered significantly higher returns in single year every four years. In past, we experienced fierce rally in small caps in years like 2007, 2009, 2014 and 2017. During good times when overall economy is doing well, small cap stocks use to deliver mind boggling returns turning multibaggers in period of just 12 to 24 months.
BSE Small Cap Index Yearly Returns
BSE Small Cap Index went up by 69% in 2014 and during the same year numerous small and mid cap stocks turned multi-bagger. Scenario was similar in 2017 when BSE Small Cap Index rallied by 58%, since Jan 2018 broader market went into bear grip with significant sell off in many small and mid caps due to expensive valuations and series of negatives developments followed by slowdown in economy.

Moreover, BSE small cap index have not given negative returns for 2 consecutive years over last 16 years, small cap index has given negative returns of -23.4% in 2018 and is down by another -14% during this year. If history repeats itself, we can expect a sharp recovery in small caps over next 3 months with BSE small cap index giving a close well above 14767, i.e. an upside of 16.2% from current levels.

Coming back to the current situation, the small cap index is down by 37.1% from its peak made in January 2018. The severe decline in broader markets started last year with introduction of LTCG tax, followed by series of negatives developments during 2018 and 2019 like IL&FS defaults, liquidity crisis in NBFCs, continuous downgrades of companies by rating agencies, lenders dumping stocks of debt laden companies, and ongoing slowdown in economy with falling automobile sales and consumption demand. Severe fall in stock prices over last 20 months have not only taken the steam out of small caps but also made companies available at significantly discounted valuations compared to large caps. Fear and misinformation has shattered investor’s confidence and hence quality businesses are back to cheap valuations after a long time. Post steep fall in stock prices, many small caps are now offering once in a decade investment opportunity!

But, the greed to get multibagger returns by investing in small and mid caps in year like 2016 & 2017 turned out to fear these days. Inspite of attractive valuations of many small and mid size companies backed by sound business fundamentals, no body wish to look at this space now. Investors who were willing to pay much higher price for small and mid cap stocks in 2017 are shying away to invest in these stocks which are now available at lower than halve the prices of 2017.

The reason is the carnage in stock prices of many well-known small and mid cap companies. Individual small and mid cap stocks are touching 52-week lows every other day and individual damage to most of the stocks in this category is to the tune of 60-70%, some even more than that from their peak prices of 2017 / 2018. Such severe and fast erosion of capital in small and mid caps have butchered investors interest towards this category. Retail investors have taken the back foot and lost their faith and conviction towards investing in small and mid caps due to existing pain in their portfolios.

However, we are quite excited about opportunities emerging in small and mid cap space during this year. The fall in stock prices of many small and mid caps by more than 50% from their peaks has not happened for the first time. This has happened in past and companies with good business fundamentals have always bounced back strongly later delivering multi-bagger returns.  When overall market sentiments are negative like we are witnessing now, quality businesses also face the heat. As bad stocks go down, good stocks go down with them too. But good companies make a stronger come back with earning revival once economy cycle starts its upturn.

We have been saying this time and again - don’t try to time the market. We firmly believe that to get the best returns in the long term, investors should invest in a staggered and disciplined manner irrespective of market conditions. Investing through ups and downs of the market lets your investment grow and averages the purchasing cost. Equity investment is a serious business meant for long term investors. Trying to get in when the market goes up and getting out when there is a correction does not help you to create wealth.

Let us share some valuable insights to make you understand why we believe buying the right set of small and mid caps now can be a massive wealth creating once in a decade opportunity. To make our readers understand bull as well as bear phase of markets, we have covered long term monthly charts of some of our own small and mid cap stocks recommendations (released under Hidden Gems and Value Picks) over last 9 years which at one point of time were down by 50% to 70% from their peak but turned out to be mega multibagger stocks in longer run delivering upto 64X returns.

Below are the Monthly Chart (since Jan'10) of 8 Multibagger Small Cap Stocks released under Hidden Gems service. 

1. Camlin Fine Sciences (Hidden Gem released on 27th Mar'11)

Multibagger Small Cap Stock Camlin Fine Sciences

Above is the monthly chart of Camlin Fine Sciences which we recommended as Hidden Gem on 27 Mar’11 at 6.05*. The stock made life time high of 155 in Jan 2018 and later crashed to lows of 36.70. At current price of around 60, it is still a 10-Bagger for investors who bought it during lows of 2011 or 2013 but those who invested later during 2015 – 2017 period are bearing losses as of now. Current situation is more or less similar like that of 2013. Investors who bought Camlin Fine Science stock at highs of 2011 were holding it bearing losses till 2013. However, initial pain of 2 years rewarded the investors of 2011 later in year 2014-2015.

2. Kovai Medical (Hidden Gem released on 27th Oct'11)

Multibagger Small Cap Stock Kovai Medical Center
Now look at monthly chart of KMCH since Jan 2010, Kovai Medical stock price made a high of Rs. 176 in Feb 2010 and low of Rs. 89.50 in 2012 when overall market sentiments were negatives. It witnessed correction of nearly 50% over next 2 years. Later in 2014, stock rallied more than 400% in matter of 12 months. Kovai Medical price fell by 56% from high of 1480 in Jan 2018, a 8-Bagger stock even after severe fall in stock price for those who invested in the company in 2012.

3. Roto Pumps (Hidden Gem released on 05th Aug'12)

Multibagger Small Cap Stock Roto Pumps Ltd
Let us look at monthly chart of Roto Pumps since Jan 2010, stock which turned 10-Bagger in matter of 16 months. Roto Pumps which witnessed correction of 60% in stock price in 2011 from high of 2010, rallied by more than 900% later in 2014. At current levels, Roto Pumps is a 13-Bagger stock for investors who bought it at lows of 2011.

4. Acrysil (Hidden Gem released on 25th Nov'12)

Multibagger Small Cap Stock Acrysil India Ltd
Above is the monthly chart of Acrysil  from Jan 2010. Acrysil stock price fell by 48% over 2 years from its peak of 2010. With improvement in fundamentals and start of bull cycle, stock delivered 588% returns within one year. It is still a 9-Bagger stock for investors who bought it in 2012 or 2013 and a 4-Bagger for those who invested at high in Jan 2010 and later experienced negative returns for nearly 4 years.

5. TCPL Packaging (Hidden Gem released on 31st Jan'13)

Multibagger Small Cap Stock TCPL Packaging Ltd
Above is the monthly chart of TCPL Packaging since Jan 2010. In 2014 with start of bull cycle in broader market, stock delivered 1100% returns in 2 years, turning 12-Bagger stock from initial high of Nov 2010 and 22-Bagger from lows of 2011. TCPL Packaging is down by 60% from its all time high but it is still a 5-Bagger stock for investors who bought it at highs of 2010 and still holding it.

6. Rane Brake Lining (Hidden Gem released on 31st May'14)

Multibagger Small Cap Stock Rane Brake Lining Ltd
Rane Brake Lining is our Hidden Gem stock recommended on 31 May 2014. During recent melt down in broader markets, stock witnessed price correction of 67% over last 2 years. Even when stock is down from all time high of 1450 hitting recent lows of 505, it is a 4-Bagger stock from highs of Nov 2010. Those who invested at high of Nov’10 were sitting on losses in the same stock for more than 3 years.

7. Visaka Industries (Hidden Gem released on 05th Jul'15)

Multibagger Small Cap Stock Visaka Industries Ltd


Above is the monthly chart of Visaka Industries since Jan 2010. Between Feb’16 to Jan’18, stock turned 9-Bagger delivering 853% returns in 2 years. Since then stock price has corrected by 68% making recent lows of 265 but is still a 5-Bagger stock for investors who invested in the same company 7 to 8 years back during 2011 – 2012 and a 2-Bagger for those who invested in 2015 - 2016.

8. Stylam Industries (Hidden Gem released on 08th May'16)

Multibagger Small Cap Stock Stylam Industries Ltd
Stylam Industries has delivered maximum returns of 6304% in last 9 years. A mind boggling mega 64-Bagger stock which moved from lows of 13.35 (Nov 2011) to high of 855 (July 2017). We recommended Stylam Industries as Hidden Gem on 08 May 2016 and advised to book full profits around 800 levels considering expensive valuations of the company. Its interesting to note that the stock which turned out to be a mega multi-bagger delivering maximum returns of 64 times over last 9 years was down by more than 70% by Nov 2011 from its peak of July 2010.

Below are the Monthly Chart (since Jan'10) of 5 Multibagger Mid Cap Stocks released under Value Picks service.

1. Aurobindo Pharma (Value Pick released on 27th Jan'13)

Multibagger Mid Cap Stock Aurobindo Pharma Ltd


Aurobindo Pharma, a well known company from pharma sector, was recommended as our Value Pick stock on 27 Jan 2013. Stock which made low of 41.52* witnessing fall of 70% from its peak of Jan 2011 later delivered 1200% returns in matter of 2.5 years. Aurobindo Pharma is still a 15-Bagger stock for investors who invested in the company during lows of 2011.

2. Mindtree (Value Pick released on 23rd Mar'14)

Multibagger Mid Cap Stock Mindtree Ltd

Let us look at monthly chart of our another Value Pick stock – Mindtree recommended on 23 Mar 2014. Mindtree also witnessed severe correction of 61% from its peak of Jan 2010 and tested patience of investors for nearly 4 years. Those who stay invested and sit patiently on the stock were rewarded over next 2 years as stock rallied from 195* to 795* delivering more than 300% returns.

3. Heritage Foods (Value Pick released on 03rd Jan'16)

Multibagger Mid Cap Stock Heritage Foods Ltd

Above is the monthly chart of Heritage Food of last 9 years. During bear phase of 2011 – 2012, stock price fell by 52% from its peak price of 2010. However,  the same company delivered 525% during bull phase in matter of 30 months. Stock made all time high of 884 in Oct 2017 turning mega 28-Bagger stock from lows of Jun 2012.

4. Can Fin Homes (Value Pick released on 29th Feb'16)

Multibagger Mid Cap Stock Can Fin Homes Ltd
Can Fin Homes witnessed severe correction of 67% from its peak during last year. However, the same stock created significant wealth for investors who invested in the company during beginning of this decade. Even after severe correction in stock price over last 2 years, stock is a 12-Bagger for investors who invested in the company at high of 2010 and a 20-Bagger who invested at lows of 2012.

5. Sonata Software (Value Pick released on 10th Jul'16)

Multibagger Mid Cap Stock Sonata Software Ltd
Above is the monthly chart of Sonata Software since Jan 2010. The stock price fell by 76% in 2 years from high of 69 made in April 2010. Investors who bought at highs of Apr 2010 were in losses for almost 5 years but those who held it tightly were rewarded handsomely over next 4 years. Sonata Software made all time high of 428.40 in Sept 2018 turning 7-Bagger for those who entered at highs of 2010.

Looking at long term charts of most of the companies with good businesses, you will realise that investors who entered in market by investing in small and mid caps during last 2 to 3 years have pain in their portfolio however those who invested in bad phase of market in 2012 - 2013 like that of today are still holding plenty of multibaggers in their portfolio. That is why its important to invest in equities keeping a real long term view. In fact, during turbulent times, we must increase investments / equity allocation in small / mid size companies which have good business fundamentals with better earning visibility and robust cash flows from their operations to get rewarded in big way in long run. We strongly believe that 2019 is a year of opportunities to invest in small and mid caps to create huge wealth in coming years.


Best Selling Subscription ServiceWe also take this as an opportunity to inform our readers that our Combo - 1 (Annual subscription of Hidden Gems, Value Picks, 15% @ 90 Days & Wealth-Builder) is the best selling subscription service at Saral Gyan, we have registered maximum subscription of Combo 1 since beginning of this year followed by Combo 2 subscription. We keep on updating our members on our past recommendations suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Subscribe to Hidden Gems and Value Picks and start investing systematically in fundamentally strong small and mid caps to create wealth in long term.  Click here to know more about our services and annual subscription charges.

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

Wish you happy & safe Investing.

Regards,

Team - Saral Gyan

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Saturday, August 17, 2019

Worried About Bleeding Portfolio? Read This Immediately!

Dear Reader,

Staying invested may be easier said than done when the markets are in bear grip, but it is a necessity for long-term wealth creation. Patience will pay rich dividends to those investors who learn to weather the storm. In fact, investments made in right set of companies during bad market conditions rewards long term investors in much bigger way.

We strongly believe that this is a great time to buy good quality small and mid size companies that have been beaten down. No one is talking about small caps these days and that’s the strong reason why we should invest in this segment. It’s wise to be greedy when there is fear surrounding small and mid caps. This is not the first time small caps have fallen out of favour and then gone on to recover smartly.

Multibagger Small & Mid Caps - Long Term Investing ReportTo make our readers understand the benefits of staying invested for long term and continue investing in small caps and mid caps during bad times like we are experiencing now, we have released - Multibagger Small / Mid Caps and Long Term Investing Report recently on 10th July 2019.

This is a must read report for all those investors who started investing in equities over last 2 to 3 years and are worried now due to their bleeding portfolio, and do not have courage and conviction to invest further in small and mid caps.

The objective of this report is to understand why its utmost important to invest in equities (mainly small and mid caps) keeping a real long term view, becoming a discipline investor by investing in stocks during good as well as bad times to create wealth through equities. We are confident that this report will reinforce your believe to stay invested during these turbulent times in broader markets and build your conviction further encouraging you to invest in small and mid caps with good business fundamentals at cheap valuations.

Broadly, Multibagger Small / Mid Caps & Long Term Investing report covers:

1. 6 Major Reasons for Decline in Small & Mid Caps
2. Budget 2019 - Steps towards easing Liquidity Crisis
3. Benefits on Investing in Small & Mid Caps during Bear Phase
4. 2019 - A Year of Multibagger Opportunities
5. The Bulls, The Bears & The Farm
6. Long Term Charts of Small & Mid Caps

To receive our Multibagger Small / Mid Caps and Long Term Investing report, simply fill up the form below. Once submitted, you will receive the report directly in your inbox. 



If you are unable to view the form, click here to fill it online to receive our Multibagger Small / Mid Caps & Long Term Investing report directly in your inbox.

Under this report, while looking at long term charts of the companies with normal / good businesses, you will realise that investors who entered in market by investing in small and mid caps during last 2 to 3 years have pain in their portfolio however those who invested in bad phase of market in 2011 - 2013 like that of today are still holding plenty of multibaggers in their portfolio. That is why its important to invest in equities keeping a real long term view. In fact, during turbulent times, we must increase investments / equity allocation in small / mid size companies which have good business fundamentals to get rewarded in big way in long run.

BSE Small Cap Index went up by 69% in 2014 and during this year numerous small and mid cap stocks turned multibagger delivering mind boggling returns. Scenario was similar in 2017 when BSE Small Cap Index rallied by 58%, later broader market went into bear grip with significant sell off in many small and mid caps due to expensive valuations and series of negatives developments over last 18 months as covered later.

We are experiencing lot of hopelessness along with fear towards equities in 2019.  The reason is the carnage in stock prices of many well-known established companies over last 18 months. Retail investors have taken the back foot and lost their faith and conviction towards investing in small and mid caps. We understand that it is really frustrating to see the Sensex and Nifty near to its all time highs while the BSE Small Cap and Mid Cap indices hovering at much lower levels compared to last year.

Since Jan 2018, Nifty and Sensex delivered positive returns of around 5%, where as BSE small cap index slumped 38%, and BSE mid cap index dropped 27%. Though these numbers tell us what the overall index lost, individual small and mid cap stocks were touching 52-week lows every other day and individual damage to most of the stocks in this category was to the tune of 50-70%, some even more than that.

When overall market sentiments are negative like we are witnessing now, quality businesses also face the heat. As bad stocks go down, good stocks go down with them too. But good companies make a stronger come back once economy cycle starts its upturn. The severe correction in broader market over last 18 months has given investors an opportunity to sieve through and find good quality stocks which are backed by strong balance-sheet and robust cash flow. The broad underperformance of the small and mid-caps seems to be overdone and interesting bottom-up opportunities are now available in this space across sectors. Earnings revival could also set the ball rolling in terms of re-rating these categories of stocks.

Click here and enter your details to receive our Multibagger Small / Mid Caps & Long Term Investing report directly in your inbox.

Stay Invested & Keep Investing for Real Long Term. Bcoz "If you want your Money to Grow, Equities is the only Way to Go"

Also Read: Diwali Muhurat Picks 2019 - 10 Best Stocks of Saral Gyan

Regards,
Team - Saral Gyan

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Tuesday, June 25, 2019

BSE Small Cap Index & Sensex - Yearly Returns since 2003

BSE Small Cap Index & Sensex - YoY Returns starting April 2003

Small Cap stocks are known to deliver impressive performance when bulls rule the markets, but they get battered during a bearish regime. For instance in 2009, Sensex was one of the best performing markets vis-a-vis its peers. This was on account of the positive impact of the stimulus released by the Government and the election results, which led to confidence among investors and corporate India that a stable government at the centre will be able to bring in a lot of reforms. This saw the index posting a superb return of 81% while the BSE Small Cap Index actually delivered an impressive 123% during the same time horizon.

This could be attributed to the fact that during market upturns small cap companies normally outperform their larger peers, since the latter would have already reached their peak in terms of the potential to grow in the future, while the former actually gets to unlock its growth potential as there is a long way for them to reach the maturity stage.

Below is the table illustrating the % returns delivered by Sensex as well as BSE Small Cap Index every calendar year since 1st April 2003.
BSE Small Cap Index and Sensex YoY Returns
Similarly, if we look at performance of various indices in 2014, Sensex has given returns of 29.9%, however BSE Small Cap Index has given whopping returns of 68.8% during the same period. In fact, 2014 was one of the best year for small cap companies after 2009 as many little known companies with good fundamentals turned multibagger during this year itself. In fact, many of our recommended stocks in 2011, 2012 and 2013 like Cera Sanitaryware, Wim Plast, Acrysil, Kovai Medical, Mayur Uniquoters, TCPL Packaging, Camlin Fine Sciences etc turned 4-Bagger to 10-Bagger stocks during 2014 and 2015.

Looking at current scenario, Sensex has made all time high of 40,312 recently on 4th June and closed at 39,435 today. However, Small Cap Index closed at 14,109 today and is still down by almost -30% from its all time high of 20,183 made on 15th Jan 2018. Money has moved from small caps to very selected large caps during last 1.5 years, this has pushed the Sensex to life time high leaving small cap companies to their 52 week lows. Negative sentiments towards small caps have  not only brought down companies with poor fundamentals down but also the fundamentally good businesses at historically low valuations. Hence, buying right set of small caps with robust business fundamentals now can be an excellent wealth creating multibagger opportunity in long run.


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. If you are looking for multibaggers, stock must have high growth rates along with expanding PE ratios. The price we pay for the stock is important as it will determine whether there is enough scope left for a PE expansion to take place. 

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 should not 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.

Tide to turn favourable for Small Cap Stocks

If you analyse the bear phase of stock markets cycle since 1990, you will find that such bear phase has not lasted for more than 18 months. Small cap index which made all time high of 20,184 in Jan 2018 with end of its bull run corrected by -35% from its peak in Feb 2019 and we believe bottom in broader markets is already in place with lows made in Feb 2019 post Pulwama attack.

Moreover, whenever BSE Small Cap Index has delivered significantly high negative returns in a particular year during last 16 years, it has delivered double digit positive returns the very next year. The divergence between Sensex / Nifty and BSE Small Cap & Mid Cap Index will not last for long going forward considering valuations gap emerging between large caps in comparison to mid & small cap stocks.

Greed which was seen in broader market (small & mid caps) in the year 2016 and 2017 has turned to fear these days. This is the time to do opposite of the herd, its time to be greedy when others are fearful. If you are not investing in equities during these opportune times and taking the back seat, you are making a bigger mistake.


Remember, in the long run, you do not make decent returns on your investments by following the herd i.e. when everyone is buying stocks; instead you get handsome returns on our investments by investing in stocks at significantly low prices as no one else is buying, and by selling to them when they come back in herd due to greed in future.


Be a disciplined investor who keep on investing in systematic way irrespective of market conditions and not an emotional investor who usually buy stocks during bull phase when stock prices are moving higher because of greed and sell them in panic during bear phase due to severe fall in stock prices, making mistake of buying high and selling low.

Download Potential Multibagger Stock 2019 Report for Free!

Wednesday, June 19, 2019

Are you Fearful of Market Crash? Its time to be Greedy!

Dear Reader,

Since Jan 2018, broader markets i.e. Small Cap and Mid Cap indices are in bear phase. Over last few weeks, we have seen small & mid cap stocks getting butchered with fall in stock prices on almost daily basis. At current scenario, when Small & Mid Cap Index is down by 31% and 21% respectively from their peak made in January last year and significantly underperformed Sensex & Nifty, no body want to touch this space. Most of the liquidity in small & mid caps has dried up and found its way to large caps over last 16 months. At this juncture, large caps looks fairly valued or expensive in terms of valuations, however small & mid cap companies look attractive and can reward long term investors in big way. In fact, some of the worst times to get into the market turned out to be the best times for long term investors and same seems to be applicable now for small & mid caps.

Its always wise to be greedy when others are fearful. Fall in stock prices of small and mid cap companies by 40% to 60% from their peaks use to happen during panic times, if a particular company delivers 3x to 5x or even 10x type of returns on your investments in period of 3 to 7 years, it can easily fall by 40% to 60% or even more from its 52 week high during tough times which arises due to profit / loss booking, series of negative events / news flows and severe sell off due to panic across markets. Below are some of the major reasons of severe fall in stocks prices of small & mid cap stocks since beginning of 2018:

i) Rejig in Portfolio by Mutual Funds to meet guidelines defined by SEBI
ii) Introduction of Additional Surveillance Measures by SEBI to curb volatility
iii) Auditors exit from various companies on fear of stringent action from authorities
iv) Unfavourable macros with increasing crude oil prices and depreciating rupee
v) Trade war fears between US and China, rising interest rates, continuous selling by FIIs
vi) Panic in market due to IL&FS default on debt repayments
vii) Concerns in market due to severe sell off in large caps stocks like Zee, Tata Motors
viii) India’s economy registering lowest growth of 5.8% in the Q4 FY19 in last 5 years
ix) Contagion risk arising due to recent default of Rs 1,000 crore by DHFL
x) Ongoing NBFC sector crisis due to credit squeeze, over-leveraging, excessive concentration and massive mismatch between assets and liabilities.

Small Cap Index has not delivered negative returns for 2 consecutive years in past 16 years

We believe this is a blessing in disguise because for the first time in many years, several small companies having robust business fundamentals are available at attractive valuations. Do you know in last 16 years, small cap index have not given negative returns for 2 consecutive years. In 2018, BSE Small Cap Index has given negative returns of -23.4% and since beginning of this year, index is down by another -5.7%. Below is the table which indicates Small Cap Index returns YoY since 1st April 2003 (the data is available from April 2003 onwards only in BSE).
Whenever, Small Cap Index delivered significantly high negative returns in a particular year during last 16 years, it has delivered double digit positive returns the very next year. While Nifty and Sensex which have given positive returns and are hovering near their life time high made recently, Small & Mid Cap Index have underperformed by wide margin and is down by 31% and 21respectively from their peak made in Jan 2018. The divergence between Sensex / Nifty and Small & Mid Cap Index will not last for long going forward considering valuations gap emerging between large caps in comparison to mid & small cap stocks.

Tide to turn favourable sooner than later for small cap stocks

If you analyse the bear phase of stock markets cycle since 1990, you will find that such bear phase has lasted for maximum period of 15 to 18 months. Small cap index which made high in Jan 2018 with end of its bull run has corrected by -31% from its peak of 20,184 in last 17 months. Taking clues from history, we believe we are close to end of bear cycle in broader market after which stock prices of small and mid-caps will start recovering by going up and further up.

Below is the monthly chart of BSE Small Cap Index since 2005. The chart illustrate that the last decade bull run which started in 2003 made a peak in Jan 2008 and later went into bear phase with continuous fall in stock prices of small caps for next 15 months, i.e. from Jan 2008 to March 2009 and later stock prices of small caps recovered and went through correction and consolidation phase. Similarly, bull run in small caps which started in 2014 made its peak in Jan 2018 and moved into bear territory later. This month i.e. Jun’19 is the 17th month of bear phase experienced by broader markets – small & mid caps. If history of small cap index repeats itself (have very high probability), we are near to end of bear phase after which stock prices of small caps will start moving northward.

With fear of losing capital and dampened sentiments towards broader markets, small cap stocks are falling like nine pins these days. We have observed a lot of hopelessness towards broader market as Investors who started investing in equities during 2017 and 2018 are not willing to invest in this space due to pain of high negative returns in their portfolio and negative sentiments towards broader markets.

Series of negative developments have made Investors taking back seat in terms of investing in broader markets. Yes Bank and DHFL are dumped by Investors due to NPAs and liquidity concerns, followed by severe correction in Essel group stocks like Zee, Dish TV etc due to high debt concerns. Moreover, continuous collapse of ADAG group companies stock prices with lenders started selling collateral shares of these companies spoiled market sentiments. Recent episode of crash in stock prices of Jet Airways, Indiabulls Housing Finance and Jain Irrigation have completely shaken up retail investors. Collapse in stock prices of such well known and bigger companies on daily basis have butchered investors faith and interest towards investing in small and mid cap companies.

Usually bottom is made during these panic times which we are witnessing currently with series of negative news flow. In fact, we believe bottom is already in place for broader market with lows of Feb'19 post Pulwama attack. Once broader market start factoring all these negatives, the focus will shift towards individual company's earnings growth and current valuations which will drive stock prices up in coming quarters.

Greed which was seen in broader market (small & mid caps) in the year 2016 and 2017 has turned to fear these days. Are you also fearful? This is the time to do opposite of the herd, its time to be greedy when others are fearful. If you are not investing in equities during these opportune times and taking the back seat, you are making a bigger mistake. Are you not following the herd mentality? If you have invested in markets during 2016 and 2017 when valuations of companies were significantly higher compared to today’s valuation, why you have stopped investing now?

Remember, in the long run, you do not make decent returns on your investments by following the herd i.e. when everyone is buying stocks; instead you get handsome returns on our investments by investing in stocks at significantly low prices as no one else is buying, and by selling to them when they come back in herd due to greed in future.

If you are not a long-term investor and thinking to make quick bucks by timing the market, it could be risky. Hence, we advise to invest only keeping a longer time horizon, minimum 2 to years or more. In fact, to make enormous wealth from equities, you should have horizon of 10 to 20 years so that you can experience 2 to 3 market cycles and reap maximum reward during bull phase of equity markets. We do not believe in timing the market and hence advise our members to follow a discipline approach, but it’s wise to turn aggressive in terms of equity investing during panic times which we are experiencing now.

“The first rule of investment is ‘buy low and sell high’, but many people fear to buy low because of the fear of the stock dropping even lower. Then you may ask: ‘When is the time to buy low?’ The answer is: When there is maximum pessimism.”
Sir John Templeton

Its important to be a disciplined investor who keep on investing in systematic way irrespective of market conditions and not an emotional investor who usually buy stocks during bull phase when stock prices are moving higher because of greed and sell them in panic during bear phase due to severe fall in stock prices, making mistake of buying high and selling low.

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Tuesday, June 18, 2019

Facts of Investing in Small & Micro Cap Companies

Value investor Warren Buffett also falls in the inefficiency camp, claiming that individual investors should be able to earn 50% annual returns with small amounts of money because they have access to high-return small-cap stocks that he can no longer buy because of Berkshire’s huge asset size

Facts about Small Cap Companies

1.If you want out sized returns, you must invest in small-cap value stocks.

2.All ten of the top-performing stocks of the past decade were small caps and most were value stocks. We can almost guarantee that the top-performing stocks of the next decade will be small caps as well.

3.Most small caps under perform, so the key is either finding the few small caps that will produce the 30, 40, and 50-baggers, or instead buying the entire small-cap universe to insure that you won’t miss out on the big winners.

4.Small caps have above-average volatility and can under perform for long periods, so their out sized returns may require a long time frame to be realized.

5.Whether small caps are inherently more risky or just inefficiently priced is undecided, but investment prudence dictates that you normally limit your small cap allocation to less than half (some say 35%) of your total equity portfolio and avoid them altogether during incipient periods of severe economic distress.

For a stock market investor, it is financial information of the company which guides him whether he should buy or sell the company’s stock. For a micro cap stock, this information is sometimes not available since some micro cap companies do not even file their financial reports to stock exchanges. Therefore, it is hard to evaluate a micro cap company using normal technical analysis methods.

What is a micro cap stock?

A micro cap company is a company having low or micro market capitalization. The term micro-cap stock (also micro-cap) is used to describe publicly traded companies which have a market capitalization of roughly Rs. 500 crore or less. Micro cap stocks are usually not able to satisfy the eligibility criteria of being listed on major exchanges.

Micro-cap companies are known for their volatility and many such companies are involved in fraud. Since the institutional investors are rarely involved in these stocks, the stock price can be manipulated by the investors. Even though these stocks come in high risk category, investors can’t turn their eyes away from them since these can be highly profitable as well. These stocks have given higher returns than large cap stocks since last 10 years. This is the reason there are a few indices specially track the performance of micro cap stocks globally. Some of these indices are Russell Micro-cap Index, the Dow Jones Select Micro-cap Indexes, and the Dow Jones Wilshire U.S. Micro-Cap Index.

In India, BSE Small Cap Index is a well known index. BSE Small Cap Index is a composition of 865 companies. Its good to point out that most of the fortune investors invested in small/micro cap stocks in early stage of their lives, hence a small pie of your portfolio could be of small / micro cap stocks, which can have the potential to change your fortune in years to come by turning to true multibaggers creating enormous wealth.

Grow your Wealth by Investing in Hidden Gems Now!

Its a fact that 50 small and micro cap stocks out of 87 recommended by our team under Hidden Gems service during last 9 years have given more than 100% returns. Stocks like Cera Sanitaryware, Camlin Fine Sciences, Kovai Medical, Wim Plast, TCPL Packaging, Mayur Uniquoter, Roto Pumps etc are our multibagger stocks have given whopping returns in the range of 400% to 2000%.

Below are some of the Hidden Gems stocks released by us which turned out be multibaggers during last 9 years. Even after severe correction in small caps over last 1.5 years, as on date returns is in the range of 150% to 1800%.  In fact, we already advised partial / full profit booking in many of these stocks at higher levels. The update of the same was published in our Hidden Gems Flash Back report.

 HIDDEN GEMS STOCKS 
 RELEASE DATE 
 MULTIBAGGER 
OLD REPORT
1. Camlin Fine Sciences
27 Mar 2011 
8-BAGGER 
2. Wim Plast
30 Aug 2011 
5-BAGGER 
3. Kovai Medical
27 Oct 2011 
7-BAGGER 
4. Cera Sanitaryware
24 Dec 2011 
19-BAGGER
5. Mayur Uniquoter
31 Mar 2012 
5-BAGGER 
6. Roto Pumps
05 Aug 2012 
7-BAGGER 
7. Acrysil
25 Nov 2012 
5-BAGGER 
8. TCPL Packaging
31 Mar 2013 
5-BAGGER 
9. Rane Brake Lining
31 May 2014 
3-BAGGER 
10. Dynemic Products
29 Jul 2014 
2.5-BAGGER
11. Mold-Tek Packaging
22 Mar 2015 
2.5-BAGGER 
12. Visaka Industries
05 Jul 2015 
3-BAGGER 
13. Chemfab Alkalies
06 Sep 2015 
2.5-BAGGER 
14. Ultramarine Pi.
11 Oct 2015 
2.5-BAGGER 
15. Stylam Industries
08 May 2016 
3-BAGGER 

Post election outcome, Sensex & Nifty made all time high and delivered positive returns of ~15% since Jan 2018 where as broader markets i.e. Small Cap and Mid Cap indices delivered negative returns of 29% and 20% respectively during the same period. Most of the liquidity in small & mid caps has dried up and found its way to large caps over last 1.5 years. At this juncture, large caps looks fairly valued or expensive in terms of valuations, however small & mid cap companies look attractive and can reward long term investors in big way. In fact, some of the worst times to get into the market turned out to be the best times for long term investors and same seems to be applicable now for small & mid caps.

Small Cap Index has not delivered negative returns for 2 consecutive years in past 16 years

We believe this is a blessing in disguise because for the first time in many years, several small companies having robust business fundamentals are available at attractive valuations. Do you know in last 16 years, small cap index have not given negative returns for 2 consecutive years. In 2018, BSE Small Cap Index has given negative returns of -23.4% and since beginning of this year, index is down by another -4.4%. Below is the table which indicates Small Cap Index returns YoY since 1st April 2003 (the data is available from April 2003 onwards only in BSE).
BSE Small Cap Index 15 years yearly return table
Whenever, Small Cap Index delivered significantly high negative returns in a particular year during last 16 years, it has delivered double digit positive returns the very next year. The divergence between Sensex / Nifty and Small & Mid Cap Index will not last for long going forward considering valuations gap emerging between large caps in comparison to mid & small cap stocks.

Tide to turn favourable sooner than later for small cap stocks

If you analyse the bear phase of stock markets cycle since 1990, you will find that such bear phase has not lasted for more than 18 months. Small cap index which made high in Jan 2018 with end of its bull run corrected by -35% from its peak of 20,184 in Feb 2019 and we believe bottom in broader markets is already in place with lows made in Feb 2019 post Pulwama attack.

Greed which was seen in broader market (small & mid caps) in the year 2016 and 2017 has turned to fear these days. Are you also fearful? This is the time to do opposite of the herd, its time to be greedy when others are fearful. If you are not investing in equities during these opportune times and taking the back seat, you are making a bigger mistake.

Remember, in the long run, you do not make decent returns on your investments by following the herd i.e. when everyone is buying stocks; instead you get handsome returns on our investments by investing in stocks at significantly low prices as no one else is buying, and by selling to them when they come back in herd due to greed in future.

Be a disciplined investor who keep on investing in systematic way irrespective of market conditions and not an emotional investor who usually buy stocks during bull phase when stock prices are moving higher because of greed and sell them in panic during bear phase due to severe fall in stock prices, making mistake of buying high and selling low.