Best Small cap stocks for long-term
List of Fundamentally Strong Small Cap Stocks with huge growth potential
| Name | CMP. Rs. | P/E | Mar. Cap.Rs. Cr | NP QTr Rs.Cr. | QTR Profit Variance% | ROCE % |
| Time Technoplast | 306.20 | 22.38 | 6948 | 94.26 | 45.27 | 15.98 |
| IIFL Securities | 221 | 13.29 | 6810 | 180.56 | 108.33 | 34.77 |
| Shakti Pumps | 2717 | 38.42 | 5444 | 89.66 | 3884 | 31.44 |
| Techno Electric Engg | 1456 | 57.84 | 15676 | 77.54 | 1414 | 16.50 |
| Electrocast castings | 172.11 | 13.83 | 10233 | 227.15 | 153.92 | 15.95 |
| Elecon Engg.co | 1321 | 42 | 14828 | 103.65 | 52.56 | 31.32 |
| Voltamp Transformers Ltd | 11126 | 36.6 | 11256 | 93.53 | 22.15 | 32.46 |
| Dolat Algotech | 143 | 16 | 2515 | 68 | 893.43 | 27.11 |
| ITD Cementation India Ltd | 479 | 29.50 | 8068 | 89.55 | 137.68 | 27.47 |
| Shilchar Technologies Ltd | 5597 | 46.46 | 4269 | 25.02 | 53.69 | 74.63 |
| Lumax Auto Technologies | 532 | 27.80 | 3623 | 51.35 | 82.24 | 17.69 |
| Talbros Automotive Components Ltd | 315.25 | 24.87 | 1945 | 49.79 | 18.90 | 21.56 |
What are Small cap Stocks in India:
This definition has a different meaning in different geographical locations. In the United States companies with market capitalization between $250 million to $2 million are considered small caps. In India an Indian company whose market capitalization is less than Rs 5,000 crores is known as a small-cap company. The stocks issued by these small companies are called small-cap stocks.
According to a SEBI regulation, businesses with a market capitalization ranking of 251 or lower are classified as small-cap Companies. By SEBI’s definition, all of these companies are small-capitalization businesses. To monitor the performance of small-cap stocks in India, the NSE and BSE each have a benchmark small-cap index. These are the BSE Small cap index and the Nifty Small cap 100.
Characteristics of Fundamentally Strong Small cap stocks
Investors should know the following features of small-cap stocks:
• Volatility: Small-cap stocks are prone to volatility due to their strong reliance on market swings. These stocks underperform in a depressed economy and perform well in an uptrend in the market.
• Risks: Due to their vulnerability to market swings, small-cap stocks have a higher risk.
• Return Potential: Small-cap stocks have the potential to produce multifold returns, making them some of the highest-paying stocks.
• Extended Investment horizon: Small-cap stocks are equity investments that typically yield positive returns over an extended period.
Advantages of Small Cap Stocks
small cap investing presents a unique way to make money in the markets. These stocks, representing small-cap companies in India with smaller market capitalizations, offer unique opportunities and characteristics.
•Future Growth: The best small-cap stocks are known for their potential for rapid growth. These small-cap companies in India often operate in flourishing industries and can experience significant expansion, providing investors with an opportunity to capitalize on early-stage success.
• Inefficient market: Compared to its larger counterparts, the small-cap market is subject to less scrutiny, which may lead to inefficiencies. In this market, pricing disparities resulting from reduced visibility may present an opportunity for astute investors who are adept at spotting hidden treasures.
• Diversified Portfolio: You can increase diversification by adding the best small-cap stocks in India to a well-rounded portfolio. Their performance is not as closely linked to large-cap equities, acting as a hedge against market swings.
• Agile & Cutting-edge Technology: Smaller businesses are frequently more inventive and nimble. Their capacity to quickly adjust to shifting market conditions may provide them with a competitive advantage that promotes growth and resilience.
Important to-do list before making small-cap investments:
Past Performance: Assessing the stability of mid-cap and small-cap firms frequently requires considering the company’s historical performance.
Bottom-up vs. Top-Down Approach: Because small-cap companies are so diverse, the bottom-up approach to investing is more effective for them.
Alpha Generation: Producing noteworthy returns or returns above average relative to the market is the main goal of investing in small caps (alpha).
Working Capital & Management Quality: Before investing, consider the company’s working capital management capabilities, stability, and management Quality
Business Model: Examine the model’s level of risk. Certain enterprises carry more risk than others.
Sustainability: A company’s ability to withstand unfavorable economic times is put to the test. Thus, you should base your stock selection on the company’s ability to withstand volatile market conditions.
Margin: The future course of a company’s share price is determined by its growth and profit margins.
Liquidity: Lastly, take the basis risk and the stock’s liquidity into account. It is preferable to stay away from shares, especially small-cap shares if there is insufficient liquidity.
How to Make Small Cap Stock Investments:
Prior to making an investment in a business, you should look into its:
Growth in revenue and earnings: You want to see a company growing and increasing its sales, even if it isn’t turning a profit yet.
P/E ratio: The P/E ratio compares the current share price to the per-share Earnings to measure the value of the company’s shares.
P/S ratio: If the company doesn’t yet have any earnings per share, you can use the P/S ratio to measure how it performance compared to other small-cap stocks.
What Should You Look at Before Small Cap Stock Investing?
Financial Health:When a company has a solid financial foundation, its share price increases.
While analyzing the financial position of a company you must look for:
Healthy liquidity ratios like current ratio and quick ratio.
consistent cash flow over the years.
balance sheet with low debt.
An organization with a Robust balance sheet and Healthy financial ratios has high growth potential against its peers for Rising sales and profits.
Smaller organizations with low cash reserves are heavily dependent on their sales. Hence, before investing in a small cap you must check its sales and profit figures for at least 5 years. Rising sales can help the organization to grow quickly. Higher profits in turn improves its income and margins through cost optimisation. An organization with consistent growth can provide healthy returns to its investors in the long term.
Good operating margin: Operating profit margin is a hallmark of the profitability of an organization. Operating margin is an important profitability ratio measuring revenue after the deduction of operating expenses. An organization with a growing operating profit margin can prove to be a good investment.
Sound management: Smaller organizations have very much less room for misstep. Even a small management mistake can be an end game for them. Hence investors should do a thorough research of the company’s promoters and management before investing.
Fundamentally strong small cap stocks: How to identify them for Your Portfolio Building
Knowing vital factors to consider when choosing small-cap stocks is crucial if you’re searching for the greatest options. These are a few to consider when selecting the top small-cap stocks:
Future Growth: It’s critical to search for small-cap stocks that have a strong track record of consistent and steady growth. Stock prices of companies that are anticipated to grow at faster rates in the foreseeable future are likely to rise.
Financial Robustness: A company’s financial stability is another important consideration. Firms with sound financial standing and a robust balance sheet are less vulnerable to sudden drops in their stock price in the event of a market downturn.
Valuation: When selecting small-cap stocks, it’s crucial to take a company’s valuation into account. Undervalued firms could have upside potential, while overvalued companies might be vulnerable to a stock price drop.
Insider ownership is something that needs to be considered when selecting small-cap stocks. High insider ownership companies typically have well-managed teams.
Business model: Lastly, while selecting small-cap stocks, it’s critical to take into account a company’s business model for doing business.
The Bottom Line:
Small-cap stock investing can be a very good avenue for outsized market returns & diversified portfolios.
However, small-cap stocks a instruments with higher risk profiles, and it is important for investors to conduct thorough research and analysis before investing in them.
For additional Reading Please referhttps://rocksofwisdom.com/future-multibagger-stocks-in-india/
https://www.investopedia.com/investing/introduction-to-small-cap-stocks/
https://getmoneyrich.com/about-small-cap-stocks
https://rocksofwisdom.com/canslim-investment-criteria-how-it-works
https://rocksofwisdom.com/how-do-mutual-funds-work-in-india
https://rocksofwisdom.com/types-of-mutual-fund-schemes-in-india