Investments in the equity market warrant robust research and analysis. This is especially true for investments in small-cap stocks, as they can provide significant returns but are more volatile. Investors assess these stocks on several metrics, including the P/E ratio, historical data, current financial statements, etc. One of the key metrics that often remain unpopular is the given company’s debt level. It is ideal and quite common for investors to look for debt-free small-cap stocks as these companies are perceived to be financially stable. It is believed that investments in debt-free small-cap stocks are relatively safer, especially when the market is experiencing significant price fluctuations.

In this blog, we will understand what debt-free small-cap stocks are, how it can be beneficial to invest in such company stocks and discuss the best three debt-free small-cap companies you can consider if you want to buy debt-free small-cap stocks.

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Businesses with no outstanding credit are the ones with debt-free stocks. Investment in such debt-free small-cap stocks is believed to be less vulnerable and financially stable, even during times of market turbulence.

Debt is fundamental for companies to raise capital for their operations and fund expansion. Just like individuals can avail of loans for big asset purchases, companies also rely on borrowing to a certain degree. Having debt in itself is not bad. The crucial point is how debt is managed. If it is managed well, it can help the company grow and scale up.

Smart investors in the financial market are always looking for debt-free businesses. A company being free of debt is a sign of effective financial management and operations. Such companies have several advantages, including:

• Flexibility in decision-making
  Debt-free companies have a free hand in making decisions regarding any aspect of their business as they do not have to worry about repayments and lenders.
• Robust credit rating
  Debt-free companies typically have a better credit rating. This ensures that when these companies do intend to borrow funds, they will be able to secure favourable terms with low borrowing costs.

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Voltamp was set up in 1963 in Gujarat. It is a major transformer manufacturer in India. The company has spread across the country with its numerous sales offices, manufacturing facilities, and service centres. The business has been focused on technology integration and innovation, which has helped it become a trustworthy name in its sector.

Voltamp’s strengths include a diverse range of clients from industries like oil refineries, power, real estate, chemicals, infrastructure, steel and automobiles. In addition to this, the company is debt-free, with steady profit growth and expanding sales. This is reflected in its stock price as well. One of the factors that has enabled the business to be debt-free is its efficient investment management, which is spread out in diversified portfolios of equity and debt funds, securities, bonds, fixed deposits, debentures, and more.

Despite this, Voltamp Transformers does have some areas of improvement, like competing with other players in the country and globally, dealing with fluctuations in currency and government policies, and managing prices of raw materials, among others.

CMS Info Systems Ltd

Established in 1976, CMS Info Systems is the biggest company in the cash payment and management solutions sector. It went public in 2021 and offers customised service offerings to financial institutions, including tech-oriented solutions like currency and ATM management, card services, and retail and enterprise services.

The company has a solid presence in India and has a robust client base. Notably, the business is debt-free, with a laudable financial performance in recent years. The company has experienced increased net sales and net profits, with a strong year-on-year growth rate as well, contributing to increasing its overall net worth.

CMS Info Systems’s venture into manufacturing ATMs, along with its debt-free standing, is a testament to its solid financials. This is reflected in the company’s stock price as well.

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Nippon Life India Asset Management Ltd

This company was formerly called Reliance Nippon Life Asset Management Ltd. Set up in 1995, it manages investments for Nippon India Mutual Fund and is a major financial entity.

The company has a wide distribution network spread across the country, which provides easy access to its goods and services. It is a dominant player in the ETF sector and has a debt-free status. The business is also strong financially, with a robust year-on-year growth rate. This is rooted in a loyal and reliable customer base, resulting in it enjoying stable returns in recent years.

Even though some companies regularly comply with repayment terms, investors in the market must look beyond the surface to uncover the following before making investment decisions:

• How much is the exact amount of the company’s credit?
• How much is the company’s reliance on debt funds to fund its operations?
• Will the company be able to resist sudden interest rate hikes?

These are just a few questions that prompt a deeper inquiry, and there will be several more. While debt repayments on time are good and may look secure, as a smart investor, it is important to get a holistic idea of the company’s financial status before investing in debt-free small-cap stocks.

Investing in debt-free small-cap stocks can offer a balance of high returns and financial stability, especially during volatile market conditions. Companies behind debt-free small-cap stocks often exhibit robust financial health, decision-making flexibility, and better credit ratings, making them attractive to savvy investors seeking lower-risk opportunities.