The stock market categorizes stocks by market capitalization into large-cap, mid-cap, and small-cap stocks, aiding investors in decision-making. Small-cap stocks, typically belonging to small companies with market capitalization between ₹500 crores and ₹5,000 crores, are favored by investors seeking higher returns.
Unlike large-cap stocks, small-cap stocks offer greater growth potential, potentially delivering superior long-term returns. In this blog, we explore small-cap stocks, their merits, risks, and investment strategies.
Table of Contents
What are Small-Cap Stocks?
Small cap shares belong to companies with market capitalization below ₹5,000 crores in India. These firms, known for their rapid growth, are traded on both the BSE and NSE, offering substantial potential to investors.
The small-cap segment is represented by the Small Caps Index, encompassing NSE-listed companies with market capitalization between ₹500 crores and ₹5,000 crores, providing insight into this dynamic market segment.
Most Popular Small-Cap Stocks of 2023
Here is the popular small cap stocks list:
| Company Name | Market Cap (in Cr) | PE Ratio | ROE | Debt to Equity Ratio |
| Lloyds Metals And Energy Ltd | ₹16,331 | -56.81 | – 47.14 | 16.02 |
| Exide Industries Ltd | ₹16,652 | 3.75 | 42.29 | 4.89 |
| Trident Ltd | ₹15,654 | 19.58 | 26.81 | 41.53 |
Small-cap Stocks- An Overview
Now, let’s look at the most popular small cap Indian companies in a little more detail:
Lloyds Metals And Energy Ltd
Lloyds Metals and Energy Ltd is an Indian company engaged in iron ore mining, sponge iron manufacturing, and power generation. It operates in three segments: Sponge Iron, Mining, and Power. Sponge Iron involves direct reduction of iron ore using natural gas or coal. Byproducts include char, fly ash, and more.
Exide Industries Ltd
Exide Industries Ltd produces and markets various lead-acid storage batteries. Their batteries are utilized in automotive, power, telecom, infrastructure projects, computer industries, railways, mining, and the defense sector.
Trident Ltd
Trident Limited is a diversified company involved in the production of terry towels, yarn, and paper made from wheat straw.
Small-Cap Stocks 101: Opportunities and Pitfalls for Investors
Investing in NSE small cap stocks can be profitable if bought at a good price with higher growth potential than large-cap stocks.
Opportunities
- Enhanced returns: Small cap stocks offer the potential for greater returns. Thus, they make great long term investment shares.
- Growth prospects: Small cap companies can grow faster than larger counterparts.
- Diversification: Investing in leading small cap stocks can diversify your portfolio.
Compared to the best stocks of larger, more established firms in the small-cap category, small-cap stocks carry higher risks and greater volatility. Therefore, investors should exercise caution and conduct thorough research before making any investment decisions.
Pitfalls
- Higher Risk: Small-cap Indian companies often face financial difficulties and may struggle to access capital compared to larger firms.
- Limited Liquidity: Small-cap stocks can have low trading volumes, leading to challenges in quickly selling shares.
- Greater Volatility: Small-cap stocks tend to exhibit more significant price fluctuations than large-cap stocks.
To Wrap It Up…
Investing in small-cap stocks offers portfolio diversification and potential for higher returns, but thorough research is essential before investing in any stock, including small-cap ones.
