Small Cap Stocks – Definition & How to Invest

Small Cap Stocks

Markets are volatile. While certain investors with limited risk capacity invest in the large-cap stocks, others go for small-cap or mid-cap stocks to get better returns owing to their higher risk appetite. Small-cap stocks are more volatile as compared to their mid-cap and large-cap counterparts. However, they are capable of outperforming the market and providing better returns than the blue-chip companies.

However, which stocks are the small cap gainers and worth investing in? Before jumping to small cap gainers, let’s take a quick look at what small-cap means.

What is a Small Cap?

Companies listed in the stock markets are divided into three segments based on their market capitalisation. These are called large-cap, mid-cap, and small-cap companies.

  • Large-cap companies: These involve companies that have a market capitalisation of more than Rs. 20,000 crores. These are also known as blue-chip companies and are some of the safest companies to invest in owing to their scale of operations and industries that they have expanded.
  • Mid-cap companies: These include companies with a market capitalisation of more than Rs. 5000 crores but less than Rs. 20,000 crores. These companies are also a good bet but are more volatile as compared to large-cap companies.
  • Small-cap companies: These include companies with a market capitalisation of less than Rs. 5000 crores. The equity shares of these companies are some of the most volatile in nature. However, they also provide more returns as compared to the other stocks. One of the reasons behind such volatility and better returns is that these companies are currently in their growth stage and are yet to reach the saturation level.
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Small Cap Gainers

When it comes to investing in small-cap companies, one has to carefully analyse the company’s prospects before investing. However, here are some of the small cap gainers that you can bet on for earning better returns:

  • ITI Limited | Market Capitalisation: Rs. 9814 crores

ITI Limited is engaged in the business of telecommunication equipment. It manufactures, trades, as well as services this equipment and its products including Code Division Multiple Access (CDMA) and Global System for Mobile Communication (GSM), defence products and other varied products. Ranging from switching, access, transmission, and subscriber premises equipment, it offers a multitude of products and services.

  • Jain Irrigation Systems Limited | Rs. 2530.2 crores

Engaged in the agricultural solutions, Jain Irrigation Systems Limited offers hi-tech agri input products, agro-processing, plastic as well as other business divisions. Its hi-tech agri input products division, being one of the highest revenue-generating divisions, includes solar agri pumps, micro and sprinkler irrigation, tissue culture plants, and integrated irrigation projects. Its plastic division includes PE piping products, PVC piping products, plastic sheets, and piping projects. It also has an international presence in the USA, Europe, and other countries.

  • Sadbhav Engineering Limited | Market Capitalisation: Rs. 251.4 crores

Sadbhav Engineering Limited is engaged in the business of construction and engineering. It develops infrastructure facilities for mining projects, roads, bridges, canals, dams, irrigation projects, etc. The company also provides engineers, and designs and acts as a contractor as well as earthwork contractor in relation to renovation, reconstruction, repair, construction, and demolition work of the above-stated projects.

  • Orient Electric Limited Ordinary Shares | Market Capitalisation: Rs. 5706.7 crores

Being engaged in consumer electrical manufacturing, the company provides electrical consumer durables, switchgear, and lighting. Electrical consumer durables are one of the highest revenue-generating segments and it consists of the manufacturing, purchase, and sale of electric fans (i.e., portable fans, ceiling fans, and airflow fans) and other appliances like geysers, coolers, and home appliances.

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In a Nutshell

Investing in small cap gainers will unlock better returns with moderate risks. However, it is always wiser to conduct your own research before investing in any company, be it small-cap, mid-cap, or large-cap. You can analyse the fundamentals of the company, its financials, and key ratios to determine the financial health of the company.

Another important factor is to analyse the current price at which the stock is trading and whether it is overvalued or undervalued. This is important because buying stocks at the right price, especially at undervalued prices, can magnify your returns and vice-versa. However, how to get all these details?

The simple answer is – Kuvera. Kuvera is a one-stop trading and investing solution where you can find all the details regarding the companies that you are looking to invest in. You can also identify the small-cap, mid-cap, and large-cap gainers that will help you make rational investment decisions. Kuvera provides you with all the information that is relevant for studying and analysing before investing. For instance, if you want to know the current share price of ONGC, just visit Kuvera and search ONGC. You will get all the details regarding ONGC on a single platform. Start Investing!

Frequently Asked Questions

Q: How are small cap gainers decided?

A: Small cap gainers are those stocks that have a closing price higher than the previous closing price in the small cap companies. This classification is important to help investors analyse and invest in the stocks that are profitable.

Q: Is the movement of stocks of small cap companies equivalent to that of the market?

A: No. Small cap stocks are more volatile in nature and their movements are more aggressive as compared to the market.

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Q: Which is better – small cap, mid cap, or large cap stocks?

A: It depends upon your investment goals and risk appetite. If you have a good risk appetite and are willing to earn good returns, then you can go for small cap stocks. Otherwise, as your risk appetite reduces, you can move towards mid-cap or large-cap stocks.

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