There is lot of hopelessness along with fear towards small and mid caps in 2019.  The reason is the carnage in stock prices of many well-known companies. 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.

Despite that we are quite excited about opportunities emerging in small and mid cap space. You may argue that most of small and mid caps have wiped out your hard earned gains over last couple of years. In fact those who invested in small caps over last 2 years are sitting on significantly higher losses and may be thinking to stay away from them.

However, we beg to differ. We firmly believe that these are the opportune times to invest in broader markets instead of large caps. During bear phase in broader markets, negative sentiments around small and mid caps have brought down excellent businesses down to historically low valuations. 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.  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.

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 opportunity in the long run. 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 multibagger stocks in longer run delivering 5x to 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) - Read Old Report

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.

2. Kovai Medical (Hidden Gem released on 27th Oct'11) - Read Old Report

3. Roto Pumps (Hidden Gem released on 05th Aug'12) - Read Old Report

7. Visaka Industries (Hidden Gem released on 05th Jul'15) - Read Old Report

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.

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.

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.

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 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 with better earning visibility and robust cash flows from their operations to get rewarded in big way in long run.

BSE Small Cap Index went up by 69% in 2014 and during the same year numerous small and mid cap stocks turned multi-bagger 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 followed by slowdown in economy.

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. We have seen in monthly charts of various stocks, how these stocks turned multibaggers in period of 12 to 24 months during bull phase of stock market.

Coming back to the current situation, the small cap index is down by 35% from its peak made in January 2018. The liquidity crisis in NBFCs, the DHFL and IL&FS defaults, series of rating downgrades by rating agencies, lenders dumping stocks of debt laden companies and recent slowdown in economic growth have taken the steam out of small caps. Fear and misinformation has shattered investor’s confidence and hence quality businesses are back to cheap valuations.

Do not stop investing in small caps looking at these turbulent times, its time to do the opposite, this phase has happened before and small and mid caps have always bounced back. Good sentiments as well as bad sentiments do not last forever.

Dear Reader,

Following the crowd in the stock market can lead to disaster if you're not careful. Panic buying or selling can push stock prices beyond reason.

The crowd-following problem seems worse when the markets are down and the mood is pessimistic, people tend to sell even if there is no specific reason to let go of an individual stock.

This common trading mistake costs investors dearly. When the talking heads on television and the wags in print and online begin talk of doom, many investors dump their stocks in favor of cash or other "safe" investments.

Rushing In

As soon as the same crowd gets excited about the market again, the cash investors rush back to the market and buy stocks.

The problem with this approach is that the investor is frightened out of the market when prices are depressed and lured back in when prices have rebounded. In other words, sell low, buy high.

Your best defense against a market that slumps dramatically is to have a well-diversified portfolio that contains an appropriate amount of risk for your financial condition. This alone won't protect you when the whole market dives, however it will position you to ride out the slump and be in good position for when the market rebounds.

The thoughtful investor always asks why the price of a stock is moving before making a decision.

• Has something changed in the company?

• Has something changed in the company's primary market?

• Has there been a negative or positive regulatory or legal change?

• Is there an underlying change in the economy?

These are not all the questions you should ask, some will be specific to the industry or sector, but you get the idea. When you can find nothing in the answers to questions specific to the company, you look to the market.

Is this stock dropping (or rising) because the overall market is moving dramatically in that direction? It can work both ways, although a down market seems to depress overall prices more than an up market raises overall prices.

Shopping at Discounted Price

If you are looking to add to your portfolio, consider a down market a great shopping opportunity. A thoughtful investor is going to buy on the potential of a company and if he or she can pick the stock up at a discount so much the better.

This investing approach takes some courage and confidence in your ability to distinguish between a stock price depressed by a down market and a stock that is fundamentally flawed. You also must be prepared for further declines if the market continues to slide and consider it to add more of our favourite stock picks backed by strong fundamentals and reasonable valuations.

If you have at least three to five years before you will need to begin cashing in your holdings (at or near retirement), you may be able to ride out an extended economic downturn. However, if you do your homework, you'll find bargains in down markets that may reward you handsomely in the future.

Don't be frightened off a stock just because the overall market is sour. If the fundamentals of a company are solid, a down market may be a great time to do some discount shopping. A fundamentally sound company will likely be on the leading edge out of an economic downturn.

These days we can see news are floating on leading business TV channels and newspapers that stock market may repeat history of 2008 going through severe downfall in major indices in coming months. However, we do not agree with such views simply because valuations are not expensive like that of Jan 2008 levels and economic growth will maintain its momentum in coming quarters. Moreover, we expect overall economy to do well in 2nd half of this financial year with better corporate earnings. We continue to suggest our members to avoid timing the markets and look for bargains during ongoing market correction. 

Team - Saral Gyan

Are you looking for a long-term winner — a multibagger? It's simple! Buy shares of a company with strong fundamentals and consistently high financial performance.

To evaluate a company’s efficiency and the quality of its management, the two key financial ratios to be keenly observed are return on net worth (RoNW) and return on capital employed (RoCE). Besides, price-to-earnings ratio could be used to determine the market price of a company’s stock and to compare it with peers’ in the same sector. Price to book value measures the value of shareholder's ownership in the company. 

While earnings yield — the quotient of earnings per share divided by the share price — needs to be seen to compare directly against the returns offered by alternative investments such as interest on a bond or savings account, debt-to-equity ratio could measure a company’s financial leverage. A high debt-to-equity ratio generally means that a company has been aggressive in financing its growth with debt. This could result in volatile earnings because of additional interest expenses. 

TTK Prestige, a leader in the Indian kitchenware market, is one of the stock in the list of multibaggers, with compound annual returns of 59.6 per cent in 11 years. In other words, Rs 1,000 invested in 2005 is valued at more than Rs 1 lakh today. A 100-Bagger stock in 11 years. This is just one of the example, there are companies which have given much better returns than TTK Prestige during the same period. Do you know, Symphony has given compounded annual returns of astonishing 102% in last 11 years. Investment of Rs. 1000 in Symphony in Jan 2005 is valued more than Rs. 22 lakhs today. Mind boggling, isn't it? It's a 2200-Bagger stock in last 11 years. These companies have turnaround their performance and hugely benefited from market growth driven by rising consumer spend, offering value added products with strong moat, evolving lifestyle preferences and broad demographic trends.

TTK’s product range and distribution have complemented the strong brand, helping it clock a revenue CAGR of 22.6 per cent in 11 years. The profit has grown at an even higher CAGR of 32.5 per cent, backed by its premium products and a debt-free status, from a debt-to-equity ratio of two in 2004. The efficiency and the quality of its management measured from consistently high RoNW and RoCE helped it become the most valuable company in the past decade. 

Titan Industries, has made its investors 37 times richer in last 10 years, with its profit growing at 27.1 per cent CAGR. However, the top-class performance in the decade may cool a little in the coming years, as demand is expected to slow down, given the tough environment. Among other most valuable mid and large cap companies of the decade are Godrej Consumer, GMDC, SKF India, IndusInd Bank, Bajaj Finance and HDFC Bank.

Stock market investment runs in sector-specific cycles. The stocks in a particular sector get bigger and give better returns as that sector gets popular. For example, between 2002 and 2007, realty, metals and capital goods companies topped the gainers’ list. The demand for housing and strong investment in capital goods and infrastructure projects saw Unitech, JSW Steel, Pantaloon Retail, Sesa Goa, Alstom T&D, Jubilant Life, Crompton Greaves, Siemens and Thermax emerge as top companies on the multibagger list.

If we look into top 200 stocks by market capitalisation with trading history of more than 10 years, we find there are 158 stocks that have outperformed the benchmark index with 10-year CAGR of more than 17.4 per cent each. Of these, as many as 99 stocks have been multibaggers — giving their stakeholders gains of over 10 times on investment made 10 years earlier, or annual average returns between 26.6 and 71 per cent. Of these, 59 have been long-term winners — the companies that have given very good high returns in 10 years as well as during the economic slowdown seen in last couple of years.

Among these 59 stocks, 10 have been consistent performers, that is, 20 per cent CAGR in sales and profit over the past decade as well as in last two consecutive years. These companies have recorded very high financial ratios, both RoNW and RoCE, and given strong earnings yield — significantly higher than the other prevailing investment avenues.

The consistent performers are from the sectors like auto ancillaries, banks, consumer durables, pharmaceuticals, housing finance, fertilisers, FMCG and mining. The drop down list of 59 companies, too, has similar sectoral compositions, with additions from automobiles and capital goods.

This clearly shows the merit in backing fundamentals over trying to time the market. Fundamentals are the most important; one has to analyse management credibility and capability, quality of the product, financial health and competitors’ position and then decide on whether to buy a stock. At the same time, when markets are not doing well, choice of high dividend paying companies and those with healthy cash balance helps. Hence, there is an element of market environment which needs to be considered. 

Dear Reader,

A small investment of Rs. 10,000 a month over a period of 10 years can help you create a corpus of Rs. 25 lakhs. Total amount invested over period of 10 years by you will be Rs. 12 lakhs and you will have profit of Rs. 13 lakhs. Not Good? This might look less to you as we are assuming returns of 13.5% per annum. If we assume returns of 27% per annum, your corpus will be Rs. 50 lakh and your profits would be more than 3 times of your actual investments that too when you are investing a nominal amount of Rs. 10,000 on monthly basis. Impressive! Right?

You might think that investing in mutual funds could be one of the way to start SIP (Systematic Investment Plan). However, returns may not be that high which you can generate by directly investing into good quality small and mid cap stocks. Hence, we suggest our members to start SIP by directly investing in stocks every month. What you are suppose to do is to invest your savings in a particular stock once in a month instead of putting it into mutual fund. 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 directly 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.

Investing in stocks is a great way to build your diversified 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. It not only allows you to save every month in a disciplined way but also help you ride through ups and downs of stock market.

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.

Hidden Gems - SIP Returns @ 256.2% Vs Small Cap Index Returns @ 73.2%

It gives us immense pleasure to share that average returns of Saral Gyan 64 Hidden Gems stocks (Our Unexplored Multibagger Small Caps) released since inception (from Sept 2010 to Dec 2016) during last 6 years is 256.2% compared to 73.2% returns of BSE Small Cap Index. Monthly investment of Rs. 10,000 in Hidden Gems till Dec'16 during last 6 years not only allowed you to save Rs. 6.4 lakh but also appreciated your investment by more than 2 times making your total Hidden Gems stocks portfolio of Rs. 22.8 lakh with overall profit of Rs. 16.4 lakh. However, if you would have invested the same amount in Small Cap index, you would be sitting with overall gains of Rs. 4.68 lakh.

Below is our Multibagger Stocks - Hidden Gems performance scorecard since inception  (from Sept 2010 to Dec 2016) which illustrates value of Rs. 10,000 invested every month in Hidden Gem (Unexplored Multibagger Small Cap Stocks) stock of the month vis a vis value of Rs. 10,000 invested in BSE Small Cap Index during last 6 years as on 26th May'17.
We are glad to inform you that 42 Hidden Gems stocks out of 64 during last 6 years have given more than 100% returns to our members. Moreover, 32 stocks out of these 42 have given returns in the range of 200% to 1800%.

Note: Total 64 Hidden Gems stocks were released (till Dec'16) during last 76 months, we have not released Hidden Gems for the months not displayed in the table above.  

We also suggested our members, which earlier recommended Hidden Gems stocks can be added more in their portfolio based on company's strong fundamentals. Ex: Mayur Uniquoter, Cera Sanitaryware, Wim Plast, Camlin Fine Chemicals, Acrysil, Kovai Medical, Superhouse, De Nora, Atul Auto, Control Print and Stylam Industries were some of the stocks which we recommended to our members to accumulate later also at higher price from our initial recommended price. Now profits can be seen as these stocks have given multibagger returns.

As we made most of these reports public, you can access read / download our research reports by clicking on the Read / Download link:

1. SAB TV NETWORK >>> Rec. Date: 05 Sep'10 >>> ROI: 890% >>> Read / Download

2. DE NORA >>> Rec. Date: 07 Nov'10 >>> ROI: 225% >>> Read / Download

3. CAMLIN FINE >>> Rec. Date: 27 Mar'11 >>> ROI: 1243% >>> Read / Download
4. WIM PLAST >>> Rec. Date: 30 Aug'11 >>> ROI: 1522% >>> Read / Download
6. CERA SANITARY >>> Rec. Date: 24 Dec'11 >>> ROI: 1760% >>> Read / Download
7. SUPERHOUSE >>> Rec. Date: 29 Feb'12 >>> ROI: 212% >>> Read / Download
8. MAYUR UNIQ. >>> Rec. Date: 31 Mar'12 >>> ROI: 560% >>> Read / Download

9. PREMIER EXPLO. >>> Rec. Date: 22 Jul'12 >>> ROI: 490% >>> Read / Download
10. ROTO PUMPS >>> Rec. Date: 05 Aug'12 >>> ROI: 420% >>> Read / Download
12. ACRYSIL >>> Rec. Date: 25 Nov'12 >>> ROI: 352% >>> Read / Download

13. BAMBINO AGRO >>> Rec. Date: 25 Dec'12 >>> ROI: 363% >>> Read / Download

14. TCPL PACKAGING >>> Rec. Date: 31 Jan'13 >>> ROI: 755% >>> Read / Download

15. ATUL AUTO >>> Rec. Date: 28 Feb'14 >>> ROI: 197% >>> Read / Download

16. RANE BRAKE >>> Rec. Date: 31 May'14 >>> ROI: 440% >>> Read / Download

17. DYNEMIC PROD. >>> Rec. Date: 29 Jul'14 >>> ROI: 214% >>> Read / Download

18. ASIAN GRANITO >>> Rec. Date: 29 Sep'14 >>> ROI: 261% >>> Read / Download

19. CONTROL PRINT >>> Rec. Date: 30 Nov'14 >>> ROI: 58% >>> Read / Download

20. PLASTIBLENDS >>> Rec. Date: 31 Jan'15 >>> ROI: 110% >>> Read / Download

21. MOLD-TEK PACK >>> Rec. Date: 22 Mar'15 >>> ROI: 171% >>> Read / Download
22. VISAKA IND >>> Rec. Date: 05 Jul'15 >>> ROI: 179% >>> Read / Download

23. CHEMFAB ALKAL. >>> Rec. Date: 06 Sep'15 >>> ROI: 178% >>> Read / Download

24. ULTRAMARINE >>> Rec. Date: 11 Oct'15 >>> ROI: 115% >>> Read / Download

25. STYLAM IND. >>> Rec. Date: 08 May'16 >>> ROI: 240% >>> Read / Download
We are confident 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.

Through Hidden Gems and Value Picks, we are providing you opportunities to invest in such small / mid cap 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.

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

Time has shown that smart investors have made their fortune by investing in equities in long term. None other asset class can match giving you such extra ordinary returns. Yes, its important for you to invest in right set of companies at right price with medium to long term perspective. If you think to invest in stocks for period of 3 months or 6 months, we suggest you to stay out of stock market because you are not investing, you are betting on volatility of stock market which could be risky.

Dear Reader,

Why is a stock that cost Rs. 50 cheaper than another stock priced at Rs. 10?

This question opens a point that often confuses beginning investors: The per-share price of a stock is thought to convey some sense of value relative to other stocks. Nothing could be farther from the truth.

In fact, except for its use in some calculations, the per-share price is virtually meaningless to investors doing fundamental analysis. If you follow the technical analysis route to stock selection, it’s a different story, but for now let’s stick with fundamental analysis.

The reason we aren’t concerned with per-share price is that it is always changing and, since each company has a different number of outstanding shares, it doesn’t give us a clue to the value of the company. For that number, we need the market capitalization or market cap number.

The market cap is found by multiplying the per-share price times the total number of outstanding shares. This number gives you the total value of the company or stated another way, what it would cost to buy the whole company on the open market.

Here’s an example:

Stock price: Rs. 50

Outstanding shares: 5 Crores 

Market cap: Rs. 50 x 50,000,000 = Rs. 250 Crores

To prove our opening sentence, look at this second example:

Stock price: Rs. 10

Outstanding shares: 30 Crores 

Market cap: Rs. 10 x 300,000,000 = Rs. 300 Crores

This is how you should look at these two companies for evaluation purposes. Their per-share prices tell you nothing by themselves.

What does market cap tell you?

First, it gives you a starting place for evaluation. When looking a stock, it should always be in a context. How does the company compare to others of a similar size in the same industry?

The market generally classifies stocks into three categories:

• Small Cap under Rs. 1000 Crores 

• Mid Cap Rs. 1000 - Rs. 10000 Crores

• Large Cap above Rs. 10000 Crores

Some analysts use different numbers and others add micro caps and mega caps, however the important point is to understand the value of comparing companies of similar size during your evaluation. You will also use market cap in your screens when looking for a certain size company to balance your portfolio. Don’t get hung up on the per-share price of a stock when making your evaluation. It really doesn't tell you much. Focus instead on the market cap to get a picture of the company’s value in the market place.