Those stocks whose market capitalization is less than Rs 5,000 crore are small-cap stocks. These stocks stand for the shares of smaller and relatively newer companies with high growth potentiality, and hence, they offer higher returns compared to mid-cap and large-cap stocks. They, however, do carry an added element of volatility risk, which is very evident during downfalls.
Ranking on Market: Companies with a ranking of 251 and above on the market fall under the category of small-cap.
Growth Potential: It is the high growth potential of these stocks that makes them capable of yielding quite substantial returns to investors.
Long-term Wealth: Small-cap stocks can turn out to be outstanding generators of wealth if held for the long term.
Volatility: They are pretty sensitive to the ups and downs of the market; their price is influenced substantially by the downturn of the stock market.
Revenue and Cash Flow: Small-cap companies could have lower revenue and cash flow compared to larger ones.
Valuation: Most small-cap stocks are undervalued due to lower recognition compared to the larger companies.
Liquidity: It is usually less liquid. That is, it is not traded as frequently and may be more difficult to purchase or sell.
Growth Trajectory: The successful small-cap stock has a potential increase into mid-cap and large-cap stocks over some time.
Here are some of the best small-cap stocks for long-term investment, based on their financial performance and growth prospects as of April 25, 2024:
Sub-Sector: Power Trading & Consultancy
Market Cap: Rs. 14,169.84 crore
Close Price: Rs. 159.35
PE Ratio: 46.32
5-Year Avg Net Profit Margin: 59.74%
5-Year Historical Revenue Growth: 13.74%
Return on Equity (ROE): 40.72%
1-Year Forward EPS Growth: 15.59%
Overview: IEX operates India's leading power trading platform, facilitating efficient trading of electricity and renewable energy certificates.
Sub-Sector: Stock Exchanges & Ratings
Market Cap: Rs. 22,477.95 crore
Close Price: Rs. 2,151.00
PE Ratio: 81.46
5-Year Avg Net Profit Margin: 45.88%
5-Year Historical Revenue Growth: 22.44%
Return on Equity (ROE): 23.06%
1-Year Forward EPS Growth: 41.63%
Overview: CDSL provides depository services and manages securities transactions, ensuring secure trade execution.
Sub-Sector: Home Financing
Market Cap: Rs. 17,282.73 crore
Close Price: Rs. 346.40
PE Ratio: 34.36
5-Year Avg Net Profit Margin: 40.49%
5-Year Historical Revenue Growth: 40.85%
Return on Equity (ROE): 16.08%
1-Year Forward EPS Growth: 20.65%
Overview: Aptus Value Housing Finance provides affordable home loans, focusing on middle-income customers in rural and semi-urban areas.
Sub-Sector: Consumer Finance
Market Cap: Rs. 20,461.21 crore
Close Price: Rs. 699.65
PE Ratio: 33.90
5-Year Avg Net Profit Margin: 36.23%
5-Year Historical Revenue Growth: 50.65%
Return on Equity (ROE): 14.99%
1-Year Forward EPS Growth: 36.14%
Overview: The company offers secured loans to small business owners and self-employed individuals, focusing on underserved markets.
Sub-Sector: Stock Exchanges & Ratings
Market Cap: Rs. 21,179.90 crore
Close Price: Rs. 4,160.85
PE Ratio: 254.84
5-Year Avg Net Profit Margin: 32.45%
5-Year Historical Revenue Growth: 13.72%
Return on Equity (ROE): 10.28%
1-Year Forward EPS Growth: 447.30%
Overview: MCX is a leading commodity derivatives exchange, facilitating trading in various commodity futures.
Sub-Sector: Tour & Travel Services
Market Cap: Rs. 8,222.27 crore
Close Price: Rs. 46.40
PE Ratio: 61.26
5-Year Avg Net Profit Margin: 29.17%
5-Year Historical Revenue Growth: 27.73%
Return on Equity (ROE): 44.28%
1-Year Forward EPS Growth: 55.42%
Overview: An online travel agency providing a range of travel-related services, including flight bookings and holiday packages.
Sub-Sector: Software Services
Market Cap: Rs. 10,758.43 crore
Close Price: Rs. 1,989.65
PE Ratio: 100.31
5-Year Avg Net Profit Margin: 27.16%
5-Year Historical Revenue Growth: 14.39%
Return on Equity (ROE): 21.71%
1-Year Forward EPS Growth: 29.83%
Overview: CE Info Systems is known for its digital maps and location-based IoT technologies through its brand MapmyIndia.
Sub-Sector: Home Financing
Market Cap: Rs. 12,705.09 crore
Close Price: Rs. 1,605.40
PE Ratio: 25.89
5-Year Avg Net Profit Margin: 26.37%
5-Year Historical Revenue Growth: 23.23%
Return on Equity (ROE): 14.14%
1-Year Forward EPS Growth: 10.18%
Overview: Offers housing loans to low and middle-income households, focusing on customer service and sustainable development.
Sub-Sector: Online Services
Market Cap: Rs. 15,936.23 crore
Close Price: Rs. 2,658.30
PE Ratio: 56.15
5-Year Avg Net Profit Margin: 24.04%
5-Year Historical Revenue Growth: 22.11%
Return on Equity (ROE): 14.43%
1-Year Forward EPS Growth: 127.01%
Overview: India's largest online B2B marketplace, facilitating business transactions across various industries.
Sub-Sector: Pharmaceuticals
Market Cap: Rs. 10,306.43 crore
Close Price: Rs. 1,357.15
PE Ratio: 27.39
5-Year Avg Net Profit Margin: 24.03%
5-Year Historical Revenue Growth: 22.48%
Return on Equity (ROE): 22.02%
1-Year Forward EPS Growth: 20.54%
Overview: Develops and markets generic medicines, focusing on affordability and quality in emerging markets.
Investing in small-cap stocks offers the potential for high returns but comes with higher risks, particularly due to their volatility and lower liquidity. The small-cap stocks listed above have demonstrated strong financial metrics and growth potential, making them promising candidates for long-term investment. As always, investors should conduct thorough research and consider their risk tolerance before investing in these stocks.