Small-cap stocks stand out as excellent options in the Indian stock market for investors willing to take calculated risks. The unique characteristics of small-cap companies, how to identify profitable investments and the benefits and risks of investing in small-cap stocks are all covered in this detailed guide.
What are small cap stocks?
Small-cap stocks, also known as small-cap shares, are shares of companies having market capitalisations of less than Rs. 5,000 Crore in India. These stocks represent smaller companies than large and mid-cap stocks, providing investors with distinct opportunities.
In India, small-cap stocks are monitored by indices like the small caps index, which cover businesses listed on the National Stock Exchange (NSE) with market capitalisations ranging from Rs. 500 Crore to Rs. 5,000 Crore. This index provides investors with information on the performance of small-cap stocks in the Indian stock market.
Small-cap stocks are frequently linked with emerging enterprises with significant growth potential. These companies may operate in a variety of industries, such as healthcare, manufacturing, technology, and consumer products. While small-cap stocks are more volatile than large-cap stocks, they also offer the prospect of considerable returns for investors willing to take calculated risks.
Investing in small-cap stocks can help diversify your portfolio by complementing large-cap and mid-cap stocks. By learning the fundamentals of the stock market and completing extensive research, you may select excellent small-cap stocks that match your investment goals and risk tolerance.
Popular small-cap stocks of 2024
Check out the popular small-cap stocks for 2024
Company Name |
Market Cap (in cr) |
Aptus Value Housing Finance India Ltd. |
Rs. 14,850.47 |
CE Info Systems Ltd. |
Rs. 10,817.37 |
Easy Trip Planners Ltd. |
Rs. 7,850.14 |
Aether Industries Ltd. |
Rs. 11,116.99 |
Happiest Minds Technologies Ltd. |
Rs. 12,105.18 |
Kfin Technologies Ltd. |
Rs. 12,749.15 |
Mastek Ltd. |
Rs. 7,660.65 |
Indigo Paints Ltd. |
Rs. 6,781.70 |
Praj Industries Ltd. |
Rs. 9,652.94 |
Sonata Software Ltd. |
Rs. 14,553.46 |
Overview of small-cap stocks in India
There are several small-cap stocks in India that garner investor interest. Let us understand more about the trending small-cap stocks in India. Please note that the data has been updated until 9th August 2024.
Aptus Value Housing Finance India Limited
Set up in 2009, the business has a clear objective of catering to the housing finance needs of families in the middle and low-income sections of the country. Its market capitalisation is Rs. 15,385 crore, and its market share has been constantly rising.
CE Info Systems Limited
This business works towards technology and data products, like SaaS, PaaS, and MaaS. The business currently has a market capitalisation of Rs. 12,033 crore, and its net income has also been increasing at a rate higher than the industry average.
Easy Trip Planners Limited
Being the second biggest online travel entity in the country, Easy Trip Planners has a gamut of products and services. This includes holiday packages, airline tickets, and hotels. Its current market capitalisation is Rs. 6,999 crore, with its revenues and market share increasing over time.
Aether Industries Limited
This business deals with chemical manufacturing, with a special focus on manufacturing speciality chemicals and advanced intermediaries. Its current market capitalisation is Rs. 11,673 crore.
Happiest Minds Technologies Limited
This firm specialises in IT consulting and digital transformation by leveraging cloud analytics, big data, security, and mobility services. Its market cap is Rs. 11,822 crore, with a compounded 3-year sales growth of 28%. In addition, the business’s free cash flow has also grown at an impressive rate compared to the industry average.
Kfin Technologies Limited
Kfin Technologies primarily deals in SaaS solutions like channel management, transaction management, data analytics, and compliance services. Its current market cap is Rs. 18,426 crore. Over the past three years, its compounded profit growth stands at 80%.
Mastek Limited
Masket Ltd. provides IT solutions like IT consulting, systems integration, application development, application security, CRM services, and data warehousing. The company’s current market cap is Rs. 8,434 crore, with a significant jump in net profits over the last five years.
Indigo Paints Limited
This is an Indian firm that manufactures a wide array of products, like exterior and interior emulsions, putties, enamels, wood coatings, primers, and roof, ceiling, and floor coats. The company’s present market cap is Rs. 6,773 crore, and its revenues and market share have also been gradually increasing.
Praj Industries Limited
Praj Industries is a small-cap stock in India, with the company operating in the domain of project and process engineering. It boasts a market cap of Rs. 12,353 crore, and its compounded profit growth over 3 years is 50%.
Sonata Software Limited
An IT solutions and services company, Sonata Software’s current market cap is Rs. 16,870 crore. Owing to robust growth in its net income, this business is popular among investors and is considered one of the popular small-cap stocks in India’s IT sector.
Why invest in small-cap stocks?
With an in-depth understanding of the trending small-cap stocks in India, it is also important to understand the different reasons to invest in them. They offer unique benefits that can align with your financial goals. Let us illustrate the main reasons for investing in small-cap stocks:
Potential for growth
The most lucrative feature of small-cap stocks in India is their inherent potential for swift price jumps.
Inefficiencies of the market
Small-cap stock markets are prone to fluctuations. This means seasoned investors may more easily identify undervalued stocks compared to beginners in the market.
Portfolio diversification
Adding small-cap stocks to your portfolio can help with its diversification as they often move differently compared to large-cap stocks.
Agility and innovation
Smaller firms can be more resilient, adaptive, and innovative. They often look to navigate the market efficiently and adapt quickly to retain a competitive edge, which can benefit investors.
Needless to say, it is always important to thoroughly research and analyse companies and stocks before investing.
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Benefits of investing in small cap stocks
- High growth potential: Small-cap stocks have the potential to grow quickly, allowing you to enjoy substantial returns on your investment over time.
- Diversification: Adding small-cap stocks to your financial portfolio might help spread risk. Because their performance is not directly related to that of large- or mid-cap stocks, they can act as a buffer during market swings.
- Innovation and agility: Small-cap companies are typically more flexible and innovative. Their ability to respond rapidly to market changes might provide them a competitive advantage, perhaps resulting in better returns for you.
- Market inefficiencies: The small-cap market in India is less scrutinised than larger markets, which might provide possibilities for you as an investor. With proper research and analysis, you may be able to find inexpensive small-cap businesses with strong growth prospects.
- Potential for higher returns: Small-cap stocks may be riskier, but they also have the potential for bigger profits. Investing in small-cap companies in India might lead to greater returns than more cautious investing strategies.
Risks of investing in small-cap stocks
- Higher volatility: Small-cap stocks are more volatile than bigger, more established enterprises. This implies that prices might be more volatile in response to market conditions.
- Limited liquidity: Small-cap stocks may have smaller trading volumes making it difficult to buy or sell shares without impacting the stock price. This lack of liquidity has the potential to increase trading costs or make it difficult to exit positions.
- Greater risk: Investing in small-cap stocks in India entails more risk than investing in bigger firms. These smaller enterprises may have less stable financials and, hence, are more susceptible to economic downturns.
- Market sensitivity: Small-cap stocks are frequently more prone to economic or industry-specific changes. This implies they may be more prone to downturns or interruptions in their respective sectors.
- Limited information availability: Small-cap stocks may provide less information to investors than bigger companies. This lack of information might make it difficult to undertake adequate study and analysis before making investment decisions.
How to find the trending small-cap stocks?
Finding trending small-cap stocks in India can be a profitable venture for investors. Begin by using stock screeners, which allow you to filter small-cap stocks based on factors such as market capitalisation, sector, and performance. These tools allow you to quickly narrow down your options and identify prospective investment opportunities.
In addition to stock screeners, being updated on market trends and changes is crucial. Keep an eye on financial news websites, investing forums, and social media platforms where small-cap stocks in India are frequently discussed. Staying proactive and engaged allows you to gain vital insights into developing trends and promising small-cap companies.
Furthermore, seek guidance from financial experts or consult credible sources on share market basics to improve your knowledge of small-cap stocks and investment strategies. Attend webinars or seminars led by investment professionals to learn key insights and methods for finding hot small-cap stocks.
Conclusion
Small-cap stocks present an excellent prospect for investors seeking strong growth potential and portfolio diversification. While these stocks may be more risky, they also have the potential for substantial returns for those prepared to conduct extensive study and analysis. By carefully examining company fundamentals and market trends, investors can find hidden gems with the potential to yield significant long-term profits.
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