The recent decline in the Indian stock market has provided investors with a good opportunity. Experts have especially turned to small-cap stocks, which are now emerging as a new investment option. So is it the time to invest in small-cap stocks? In this article, we will try to find out based on the views of experts whether it is the right time to invest in small-cap stocks, and how we can select these stocks for better investment.
Recent decline in stock market and its impact
Recent decline in Indian market
The Indian stock market has fallen significantly in recent months, especially the Nifty 50 index. As of November 30, the Nifty 50 was down 8 percent from its peak. At the same time, the Nifty Smallcap 250 index fell by about 5 percent. This decline has provided investors an opportunity to identify good value opportunities.
Difference between large and small-cap stocks
When we talk about the types of stocks, small-cap stocks are those of companies that have a smaller market capitalization. These stocks often come with more risk and higher returns. On the other hand, large-cap stocks are stable and usually have less risk. Experts believe that large-cap stocks still have weakness, while small-cap stocks may have hidden potential.
What do experts say?
View of G. Chokalingam
G. Chokalingam, founder and head of Economics Research, believes that the right time has come to invest in small-cap stocks. According to him, foreign institutional investors (FIIs) have less investment in small-cap stocks, which reduces the impact of foreign capital on these stocks. Therefore, he considers small-cap stocks an attractive investment option.
Vikas Jain’s opinion
Reliance Securities’ Research Head Vikas Jain says that small-cap stocks have fallen sharply recently, which has thrown up some good investment opportunities. However, he suggests that investors should invest selectively and with a solid strategy.
Manish Chaudhary’s view
Stoxbox’s Research Head Manish Chaudhary says that small-cap stocks have seen a significant decline from their highest price, and now there can be value opportunities in some sectors. In particular, investment opportunities are emerging in public sector companies such as defense, shipping, power and railways.
Ajit Mishra’s advice
Religare Broking Ltd’s Research Head Ajit Mishra believes that it is important to adopt a selective approach before investing in small-cap stocks. He especially advises investing in companies whose profitability is clear and stable.
Things to keep in mind while investing in small-cap stocks
Investment strategy
While investing, we should keep in mind a few important things. Firstly, we should always adopt a strong selective approach. For example, we should choose companies whose business and future growth prospects are clearly visible. Also, they have good fundamentals and financials.
Investment opportunities
There are certain sectors where small-cap stocks can perform well:
- Construction products and logistics companies – These sectors have huge potential, and are not included in Nifty or Sensex.
- Public sector companies – such as railways, defense, power companies, which can benefit from government policies.
- Agriculture and fertilizer companies – These sectors are expected to grow in the long term.
Being cautious
Although there are opportunities to invest in small-cap stocks, we still have to be cautious. We should take investment decisions keeping in mind the overall market situation, government policies and the attitude of foreign investors.
Benefits of investing in small-cap stocks
- Value opportunities: Value opportunities can be seen in small-cap stocks after a big fall.
- Fast growth: Small companies can grow quickly, which can give investors more returns.
- Less foreign influence: Foreign institutional investors have less stake in small-cap stocks, which reduces the global economic impact on them.
Risks of investing in small-cap stocks
- High risk: There is a higher risk while investing in small-cap stocks, as these companies have less stability than large companies.
- Low liquidity: There is less trading in small-cap stocks, which can lead to lack of liquidity in the market.
- Impact of market fluctuations: Small-cap stocks are more affected by market fluctuations.
Will small-cap stocks perform well next year?
Experts believe that small-cap stocks may perform better next year if some economic and financial events are favorable. As soon as the government budget and upcoming policies become clear, investment opportunities in small-cap stocks may increase.
Conclusion
Ultimately, investing in small-cap stocks can be a bold step, but it requires choosing the right strategy and timing. According to experts, there are many opportunities to invest in small-cap stocks at present, but success can be achieved only with vigilance and proper selection.
Frequently Asked Questions (FAQs)
- Are small-cap stocks a safe investment?
Does investing in small-cap stocks have high risk, but with proper selection and strategy, one can get good returns.
- Does investing in small-cap stocks lead to quick returns?
Yes, small-cap stocks have the potential for rapid growth, which can lead to higher returns.
- Should I invest in all small-cap stocks?
No, you should do the right research and strategy before investing in small-cap stocks.
- Do foreign investors have a stake in small-cap stocks?
No, foreign investors have a low stake in small-cap stocks, which reduces the impact of external factors on these stocks.
- Should one look at market conditions before investing in small-cap stocks?
Yes, one should invest in small-cap stocks keeping in mind market conditions and other economic factors.