List of Small Cap Stocks You Can Buy
Stocks can be categorised on the basis of market capitalisation into large-cap, mid-cap and small-cap stocks. Among these three types, small-cap stocks are often considered to be the riskiest investment options. However, they also have the potential to deliver excellent returns in the long run, especially if the small-cap stocks are of good quality.
But then, how do you ensure that you invest in the right small-cap stocks and what are some good-quality stocks you can consider investing in 2024? Here’s a comprehensive guide that can help give you some much-needed clarity.
What are Small-Cap Stocks?
Before we check out the list of small companies to invest in, let’s quickly look at what small-cap stocks are.
The Securities and Exchange Board of India ranks all listed companies according to their market capitalisation in descending order. All companies that are ranked 251 and above are automatically categorised as small-cap stocks. The average range of market capitalisation of small-cap stocks is roughly around Rs. 5,000 crores or maybe even lower.
Factors To Consider Before Investing In Small-Cap Stocks
Now that you know what small-cap stocks are, let’s look at some of the key factors you need to consider when investing in them.
Volatility
Volatility is a measure of how quickly the price of an asset can change. For instance, if a stock is prone to rapid and unexpected price jumps, it is considered to be highly volatile. On the other hand, if a stock’s price isn’t susceptible to drastic and unexpected changes, it is considered to be less volatile.
Due to their relatively less established nature, small-cap stocks generally tend to be very volatile. Therefore, if you’re planning to invest in a small-cap stock, you need to ensure that it is not very volatile or prone to rapid price changes.Investment Horizon
With most small-cap stocks, it may take years for them to get well-established or generate meaningful returns. This makes it an ideal option for investors looking to build wealth in the long term.
Risk Factor
As you’ve already seen, small-cap stocks are often deemed to be high-risk investments. This is because they’re not as well-established as large-cap or mid-cap companies. Also, the fundamentals and financial performance of small-cap companies are not as strong as the other two categories of entities.
Returns
The potential for returns with small-cap stocks is often much higher than with large-cap stocks. That said, it is crucial to note that the returns are generally erratic and not as consistent as mid-cap or large-cap stocks.
Cost Of Investment
Since the stock price of small-cap companies is generally very low and affordable, the cost of investment is negligible. However, you need to account for other costs like brokerage and transaction costs like STT, SEBI turnover charges, GST and stamp duty, when investing.
Taxation
The gains you receive from small-cap stocks are taxed depending on how long you hold your investments. If the holding period is less than 12 months, the gains are categorised as Short-Term Capital Gains (STCG) and are taxed at 15%. On the other hand, if the holding period is more than 12 months, the gains are categorised as Long-Term Capital Gains (LTCG) and are taxed at 10%. Therefore, if you’re planning to invest in small-cap stocks, you need to account for the taxation aspect since it can reduce the returns you get from your investments.
Company Growth
Not all small-cap companies have the growth potential to become multibaggers in the long run. As an investor, you need to ensure that you invest in small-cap stocks that have the potential to grow.
Some Small-Cap Stocks For 2024 India: Top Stocks Overview
In the Indian stock market, there are plenty of small companies to invest in. However, selecting the right stocks is not as easy as it may seem. Here are some of the best small-cap stocks you can consider investing in 2024.
Bajaj Consumer Care Limited
Founded in 1930, Bajaj Consumer Care Limited is one of the country’s leading manufacturers of fast-moving consumer goods (FMCG). The company has more than 37 products in its portfolio under three brands - Bajaj, Natyv and Nomarks.
MMTC Limited
A government of India enterprise that was established in 1963, MMTC Limited is one of the leading international trading companies in the country. The entity has 8 different business verticals ranging from agro products and coal to metal and minerals.
Nazara Technologies Ltd
One of the few entities in India that’s involved in the gaming, sports and media segments, Nazara Technologies Limited was established in 1999. The company is very much involved in developing mobile games and has several intellectual properties (IPs) to its name, which include Sportskeeda, Animal Jam, Kiddopia and Classic Rummy, among others.
Marksans Pharma Limited
An Indian pharmaceutical company with a significant global footprint, Marksans Pharma Limited was founded in 1992. The entity has manufacturing facilities in Goa and the United Kingdom and supplies the products it manufactures to 7 different geographical regions.
Castrol India Limited
The second-largest industrial and automotive lubricant manufacturer in India, Castrol India Limited was founded in 1910. The total market share of the company in the country is close to 20%. In addition to manufacturing a wide range of lubricants, Castrol India Limited is also involved in providing a plethora of technical services for the automotive, aerospace, marine, wind and oil and gas industries.
Conclusion
With this, you must now be aware of some of the small-cap stocks you can consider investing in this year. Now, it is essential to note that small-cap stocks are considerably riskier compared to mid-cap and large-cap stocks. Therefore, always remember to conduct a thorough fundamental analysis before investing. This will not only ensure you make a well-informed investment decision but can also help you determine the right stock to invest in.
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FAQ
What separates a feeder fund from a typical mutual fund?
A feeder fund transfers its investments to a master fund, whereas a regular mutual fund invests directly in equities.
How do feeder funds manage risk?
Feeder funds diversify their investments over numerous master funds, which reduces risk and increases portfolio resilience.
Can feeder funds invest internationally?
Yes, feeder funds can participate in overseas markets via master funds, giving investors access to a wide range of investment options.
Are feeder funds good for new investors?
While feeder funds provide professional management, inexperienced investors should conduct extensive research and obtain expert advice before investing.
Can feeder funds guarantee a return?
Feeder funds, like all investments, are susceptible to market fluctuations and cannot guarantee returns. However, they have the ability to grow and generate income in the long run.
How can investors monitor the performance of their feeder fund investments?
Investors may track the performance of feeder funds by receiving regular updates from the fund manager, as well as periodic statements and reports.
What factors should investors think about before investing in a feeder fund?
Investors should consider investing goals, cost structures, and the feeder and master funds' track records.