Small Cap Stock List

What are Small Cap Stocks?

Small cap stocks are the stocks of small cap companies that are traded on stock exchanges like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). These are companies with low market capitalisations. More specifically, these stocks belong to listed companies in the 251st position onward in terms of market capitalisation.

A common misconception about small cap stocks is that they belong only to young companies or startups. This may not always be the case. Some established companies may also be a part of the small cap stocks list. As a matter of fact, most of the stocks traded on the NSE and the BSE are a part of the small cap stocks list. These stocks are typically volatile and carry a high degree of risk.

However, the best small cap stocks belong to rapidly growing companies that have excellent growth potential and may evolve into mid cap or large cap stocks over the years. If you are looking for small stocks to buy today, these are the stocks that you need to consider adding to your portfolio.

Features of Small Cap Stocks

• High Volatility:

  Small cap stocks tend to experience larger price fluctuations than mid cap and large cap stocks. This increased volatility may be due to various factors like lower liquidity, fewer outstanding shares available for trading or less information available about small cap companies.

• Investment Risk:

  Owing to the increased volatility in the stock prices, there’s also a higher risk associated with small cap stocks. This risk may be amplified by factors like competition and the company’s vulnerability to economic downturns.

• Low Cost of Investment:

  The market price per share is typically lower for most small cap shares. This makes them easily accessible for all investors, even those with a small amount of capital at their disposal. However, some small cap stocks may carry a high market price per share.

• Potential for Returns:

  One of the most attractive features of small cap stocks is their potential to generate higher returns over the long term. Since the initial valuations of these shares are typically on the lower end, their potential to emerge as multi-baggers is relatively higher.

• Long-Term Investment Horizon:

  Historically, experts have recommended a long-term perspective for such stocks. The idea behind this outlook is that given enough time, the best small cap stocks may perform well and evolve into mid cap or large cap stocks.

Benefits of Investing in Small Cap Stocks

• High Potential for Growth:

  Small cap companies may have higher chances of acquiring more capital over the years. These companies may issue more shares, or their stock prices could rise organically with time. As a result, investors get the advantage of significant long-term capital appreciation. This high potential for growth makes the best small cap stocks particularly attractive for investors with a long-term outlook.

• Fair Share Prices:

  Another major advantage of small cap stocks on the NSE and the BSE is that they tend to be quite fairly priced. This is because major institutional investors like banks and mutual funds need to abide by certain rules pertaining to investing in the best small cap stocks. As a result, the risk of such stocks experiencing an unfair price push is lower. This makes it possible for retail investors to enjoy relatively fair share prices for small cap stocks.

• Affordable High-Quality Stocks:

  Small cap stocks are often priced quite low on account of market inefficiencies and other factors. However, over time, stocks of companies with exceptional growth potential may appreciate several times in price. This makes high-quality small cap stocks affordable for retail investors with lower amounts of capital at their disposal.

Drawbacks of Small Cap Stocks

1. Susceptibility to Market Risk:

   Small cap stocks are often more sensitive to overall market movements. Economic downturns or industry-specific setbacks can disproportionately impact these stocks, leading to significant price drops.

2. Low Liquidity:

   Stocks of small cap companies might not trade as frequently as larger companies. This can make buying or selling shares challenging, potentially leading to unfavourable prices and/or longer wait times for executing your trades.

3. Lack of Historical Data:

   Newer or smaller companies in the small cap stocks list might not have an extensive track record of historical prices. This makes it harder for investors to analyse past performance and predict future trends, increasing investment uncertainty.

4. Lower Dividend Yields:

   Smaller companies often reinvest profits to fuel growth rather than pay out dividends. This means investors might receive fewer regular income payouts, relying more on potential price appreciation for returns over the long term.