Why do people invest in small-cap stocks? Is small-cap a good investment? Want in-depth knowledge with examples? If so, let’s read the following article to know the benefits and risks of small-cap investing and examples of successful small-cap stocks for investors interested in this market segment.
Investing in small-cap stocks can be an exciting way for investors to diversify their portfolios and earn good returns. These stocks usually have market capitalization of less than Rs 5,000 crore each. More prominent investors often ignore these stocks, but they have excellent growth potential.
What Are Small-Cap Stocks?
Small-cap stocks are shares of smaller companies based on market value and are often growing because they are innovative, flexible, and have the potential to expand. Market capitalization is found by multiplying the company’s share price by the total number of shares available.
The Benefits of Small-Cap Investing
- High Growth Potential: Small-cap companies are often just starting to grow, which means they can significantly increase in value. They might work in specific markets or have new products or services that can help them improve.
- Market Inefficiencies: These stocks usually get less attention from analysts than large-cap stocks. This lack of research can help smart investors discover undervalued opportunities others must exploit.
- Diversification: Adding small-cap stocks to a portfolio can help diversify it because they behave differently than large-cap stocks, which can reduce risks.
- Less Financial Market Attention: These stocks get less attention from the Financial Market and usually are not discovered quickly by the market. So, they remain mispriced for a long time.
The Risks of Small-Cap Investing
- Volatility: Small-cap stocks are usually more volatile than large-cap stocks. This can cause significant price changes, making it hard for investors who dislike risk.
- Liquidity Issues: These types of stocks usually have less trading activity, meaning fewer buyers and sellers. This can lead to bigger differences between buying and selling prices, making it harder to buy or sell shares at the price you want.
- Business Risks: Small companies often face more business risks because they are smaller, have fewer resources, and are less known in the market. They can be more affected by economic downturns, competition, and other outside factors.
Some Small-Cap Stocks with Huge Growth Potential
1-KPI Green Energy :
KPI Green Energy is a well-known solar energy company in Gujarat with 28 years of experience. Under the Solarism brand, they are recognized as Independent Power Producers (IPPs) and Captive Power Producers (CPPs).
With a large amount of land and a capacity of 312 MW, they provide a steady supply of solar power to their customers. Their dedicated team of experts and scientists focuses on improving the efficiency of their solar plants, making them a reliable and innovative player in the market.
2- Advait Group:
Advait Infratech specialises in robust solutions and products for power transmission, substations, and telecommunications. With a decade of expertise, the company is committed to completing telecommunication projects and installing power transmission systems.
Their product range includes stringing tools, OPGW cables, OFC cables, ACS wires, and ERS systems. Focused on promoting clean energy, Advait Infratech is investigating green energy options to develop an efficient and sustainable power distribution network.
3- Shilchar Technologies
Shilchar Technologies Limited (SELC) was founded in 1990 in Vadodara, India. The company makes transformers and related parts. SELC serves several sectors, including renewable energy like solar, wind, hydropower, and private utility companies. It also works with industries such as cement, sugar, steel, hydrocarbons, large engineering projects, EPC contractors, corporate clients, and power plant developers.
4- Titagarh Rail Systems Limited
Titagarh Rail Systems Ltd. , originally called Titagarh Wagons Limited, started in 1997 and quickly became an important player in railway manufacturing. The company makes freight wagons, passenger coaches, metro trains, and other products for local and international markets. The company also manufactures defence equipment, demonstrating its versatility and solidifying its reputation as a leading provider in the industry.
5- Zen Technologies
Zen Technologies founded in 1993 and located in Hyderabad. The company designs and produces advanced training simulators and equipment. They have expanded their products to include anti-drone technologies, receiving positive feedback from military forces, state police, and paramilitary groups. The company’s growth is supported by a strong network of suppliers in and around Hyderabad, which is vital to its success.
Tips for Investing in Small-Cap Stocks
- Research The stocks: Small-cap stocks often have little analyst coverage, so it’s essential to research them carefully. Check a company’s financial performance, competition, and growth potential.
- Diversify Your Portfolio: Small-cap stocks can provide significant returns, but they also carry risks. So, spread your investments across various sectors, including micro-cap, small-cap, mid-cap, and large-cap stocks.
- Maintain Focus On Long-Term Goals: These stocks can be unstable in the short term but often offer strong returns over time. Stay patient and concentrate on the company’s long-term potential.
- Monitor Market Trends: Keep up with market trends and economic factors that could affect these companies because these stocks respond more to market changes and economic cycles.
If you’re stepping into investing, Sovrann’s 45 day free trial special offer can be your guiding star. India’s first and only platform covering Micro-Cap, small-cap, and SME markets. Sovrenn delves into stocks often overlooked by other platforms, providing valuable insights.
Conclusion
Investing in small-cap stocks can be rewarding for those who accept the risks. These stocks have the potential for high growth, can take advantage of market inefficiencies, and help diversify your investments. By carefully researching, spreading your investments, and aiming for long-term growth, you can successfully explore the small-cap market and find promising opportunities.
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