Small Cap stocks ( having Mcap less than Rs 100 Cr ) are very exciting investments, because they can produce bigger gains in shorter timeframes than you would see with conventional stocks.Before you get all charged up on reading that we’re about to talk about the 10 stocks that are the best in India, wait.
How can we be talking of the ‘best’ stocks when we have seen the ‘worst’ all around us, for so many months now? You know for a fact that the BSE-Sensex is still down 27% since hitting its all time high in January 2008. But do you know that the index is still 259% up since its levels 10 years back? So just by staying invested in the markets, you would have multiplied your money 3.5 times over. And this is just about the broader index, which is made up of large cap stocks that anyways do not rise in multiples. After all, it’s difficult for companies with market capitalization of US$ 10 bn to double fast.
But what about a company that has a market capitalization of just around US$ 0.1 m , or at an exchange rate of 45 to the dollar, just about Rs 37 lac? It doesn’t take much to double or triple, right? Yes, it doesn’t. Or what would justify the fact that while the Sensex has returned 259% in the last 10 years, there are numerous stocks that have churned out returns of more than 10,000% over this period. Here are some of them.
10 best performing stocks over the past 10 years.
Company Name Stock price(June 1999) Stock price (June 2009) Gain %
Unitech Ltd. Rs. 0.3 Rs. 93 30900%
Kotak Bank Ltd. Rs. 3.1 Rs. 660 21200%
Matrix Lab Rs. 0.9 Rs. 209 23128%
Gujarat NRE Coke Rs. 0.2 Rs. 54 26975%
Mercator Lines Ltd. Rs. 0.4 Rs. 73 20206%
Praj Industries Ltd. Rs. 0.6 Rs.115 18225%
Anant Raj Inds. Ltd. Rs. 0.8 Rs.133 17009%
Aban Offshore Ltd. Rs. 6.0 Rs. 956 15833%
K S Oils Ltd. Rs. 0.5 Rs. 62 12220%
Era Infra Engg. Ltd. Rs. 1.01 Rs. 119 11682%
Seeing this table, you will know pretty rapidly that the best way to make money in the market is to invest for the long term. What this table doesn’t show is that all these stocks have been volatile like any other stock in the market, and you need to recognise that volatility is part of the ride. Now, when you commit to the long term, you quickly discover that the stocks that offer the best returns today were not really the well-known, widely owned names of those times. How many of you had heard of Matrix Labs or Praj then? Or for that matter how many really took Unitech seriously?
So, the trait that sets these stocks apart is that they were small companies with very small market capitalization. And although companies such as Unitech, Matrix Labs and Praj are much bigger in terms of size and market-cap today, tracked and owned by big institutional investors, there are quite a few small cap stocks waiting in the wings, doing all they can to become the next multi baggers.
So you now know for the fact that finding small stocks like the ones mentioned is a clear cut way to make tremendous wealth from the stock markets over the long term. You just need to invest in small companies that enjoy rising demand for their products, have great business models, firm financial foundations, and straightforward and visionary management teams.
So take this lesson from the market’s 10 best stocks, and put it to work in your portfolio by buying small cap stocks. Of course, you need to adhere to your risk profile (small caps are high risk stocks if your investment horizon is not long) before taking any such action.
K. Tushar Kanti Dayal
MPower Capital
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