Small Cap Stocks in India

What are small cap stocks?

Small cap stocks are listed companies ranked 251st and below by full market capitalisation under SEBI's classification. That covers the large majority of listed companies in India - from well-run niche businesses to young, unproven ones.

Market cap is the share price multiplied by the number of shares, so a small cap is simply a company the market currently values at a smaller amount. Some small caps grow into mid and large caps over time; many don't.

Why investors look at small cap stocks

High growth potential

A small company that executes well can multiply its revenue and profit, and its share price can rise much more than a large company's.

Less analyst coverage

Few analysts follow most small caps, so careful research can uncover businesses the market has not yet noticed.

Exposure to niche industries

Many specialised businesses - in chemicals, engineering, consumer brands and more - are only available as small caps.

Risks every beginner should understand

Volatility

Small cap prices can rise and fall very sharply. Falls of 30-50% or more in a market downturn are not unusual.

Liquidity

Many small caps trade in low volumes. When you want to sell, there may not be enough buyers at the current price, and the gap between buying and selling prices can be wide.

Business and governance risk

Smaller companies often depend on a few products, customers or people, and have thinner financial buffers. Governance standards vary more widely.

Price bands

Many smaller stocks have daily price limits (circuits) of 2%, 5%, 10% or 20%. When a stock hits its limit, trading in that direction can freeze, making it hard to buy or sell.

How to approach small cap investing

Treat small caps as a smaller part of a diversified portfolio rather than its core, and invest money you won't need for several years. Before buying, read the company's annual report and quarterly results, check debt and cash flow, and look at who the promoters are and how much of their holding is pledged (the shareholding pattern on each stock's page shows this). Small cap mutual funds, which SEBI requires to invest at least 65% in small cap stocks, spread the risk across many companies.

How to invest in small cap stocks

1. 1

   Open a demat and trading account

   A demat account holds your shares electronically; a trading account lets you buy and sell them. With GoPocket you can open both online in a few minutes with your PAN, Aadhaar and bank details.

2. 2

   Add money

   Transfer funds to your trading account by UPI or net banking.

3. 3

   Research the company

   Pick a company from the list above and open its page to see its share price chart, financial performance and shareholding before you decide. Compare it with other small cap stocks on business quality, debt, growth and valuation.

4. 4

   Place your order

   Search for the stock in the GoPocket app or web platform, choose the quantity, and place a delivery order to hold the shares in your demat account. A limit order lets you set the most you are willing to pay.

5. 5

   Track and review

   Follow the company's quarterly results and news. Spreading your money across several companies and sectors reduces the damage if one investment goes wrong.

Terms used on this page

LTP

Last traded price - the price at which the stock last changed hands. The figure below it is the change from the previous day's close.

Market cap

Market capitalisation: share price multiplied by the number of shares issued. It measures a company's size in the market and is shown here in rupees crore (1 crore = 1,00,00,000).

Cap band

Whether a company is large, mid, small or micro cap, based on its market capitalisation. Larger companies tend to be less volatile.

Sector and industry

The NSE groups companies into broad sectors (such as Financial Services) and narrower industries within them (such as Banks), based on what they mainly do.

Trading graph

How the share price has moved during the latest trading session, from the 9:15 open to the 3:30 close. The dashed line is the previous day's closing price.