If you ask a trader, where do you want to see yourself in the future?, the trader would reply to you with a stunning answer quoting, “I wish to see myself in the list of top successful investors in the news articles!”. But as a reader of this blog, would you believe this is possible to achieve? Well, most of us think it is not but, it is possible if you choose to invest in small-cap companies!
In this blog, we’ll be discussing what a small-cap share is and how to choose the best small-cap shares in India:
WHAT IS A SMALL-CAP SHARE?
Small-cap shares are companies that have a market capitalization of less than Rs.5,000 crores. These small companies have set into the market a couple of years ago and are relatively small. An investor would prefer to invest in the company based on its vision and potential to grow in the future. Before investing in a small-cap share, please seek guidance from a market expert because these stocks depend on the company’s performance and risk exposure.
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HOW TO CHOOSE THE BEST SMALL-CAP SHARES?
- PROS AND CONS:
Every company in this world was once a startup. The people later discovered it because of its vision. While investing in a small company can fetch you profitable returns for your long-term investment and offers less competition from institutional investors. In every sector, there are also negative factors that are associated with pros. In small-cap shares, the liquidity is limited with higher volatility, and it is less transparency.
- ANALYZE THE VISION:
If you have decided to invest in a small-cap share, you should analyze the goals that have been set by the organization for the future, as it will give you a clear vision of how profitable your investment would be. Ensure the idea is innovative, achievable and future-oriented as it can help the organization empower in their respective field of operations.
- LOOK INTO THE BUSINESS MODEL:
A business model is the most critical factor that has to be considered by an investor investing in small-cap shares. Most of the investors would doubt the business model of a small company. Here is an example of that, decades later, a company used to sell books in the online medium, but now it has evolved as a giant superstore. Yeah! I guess you might have known the company we’re talking about, and it’s none other than Amazon! Hence, it’s the vision and innovative ideas of the company that evolves its growth!
- ANALYZE THE INSTITUTIONAL HOLDINGS:
As an investor, analyze the institutional holdings of the company as it would help you determine the possible returns that can be fetched in a long-term investment.
- PROMOTER’S STAKE & ITS TRACK RECORD:
A promoter’s stake in small-cap shares would reflect the confidence of the promoters in the business and its strategies. It is an essential factor that has to be duly noted by an investor, and you should also be aware of the promoter track record to know whether a strong team backs them.
- DEBT FIGURES:
The last and most cautious factor that has to be considered by an investor is the debt figures. Investing in a company that owes huge debt would probably reduce your returns and affect the distribution of shares.
START INVESTING IN SMALL-CAP SHARES:
The experts prefer to invest in small-cap companies by analyzing their potential to grow shortly. There is a higher probability of getting profits and losses in small-cap shares, but you can overcome the loss in advance if you seek guidance from an expert. Hence, act wisely and efficiently in the share market, so you don’t have to wipe your tears!
If you are new to the stock market and unsure of choosing the best small-cap shares, seek guidance from Goodwill, as they will analyze and help you choose the best ones.
For more info, visit the official website of Goodwill or make a call on +91 80122 78000 to trade your stocks smartly and efficiently. Stay connected with Goodwill’s Facebook Page and get instant live updates on your stocks.
