Last Updated on Jan 19, 2024 by Anjali Chourasiya

Small-cap stocks, categorised by a market capitalisation under Rs. 5,000 cr., present unique opportunities and challenges for investors. These stocks, ranking 251 and above in the market, are often associated with higher growth potential and the possibility of significant returns. However, they also tend to be more volatile and less liquid. In this concise guide, we explore the features, advantages, and disadvantages of small-cap stocks, offering practical insights for investors looking to navigate this segment of the market. Further, we have listed small-cap stocks with huge growth potential, fundamentally strong small-cap stocks, and the ones based on their 1-yr return. 

Whether you’re assessing risk tolerance or seeking long-term growth, understanding the basics of small-cap stocks is essential for informed investment decisions. 

Best small-cap stocks for long-term

NameSub-SectorMarket Cap (Rs. in cr.)Close Price (Rs.)PE Ratio5Y Avg Net Profit Margin (%)5Y Historical Revenue Growth (%)Return on Equity (%)1Y Forward EPS Growth (%)
Indian Energy Exchange LtdPower Trading & Consultancy12,200.20137.2039.8959.7413.7440.7211.18
Central Depository Services (India) LtdStock Exchanges & Ratings19,025.791,820.6568.9545.8822.4423.0633.68
Aptus Value Housing Finance India LtdHome Financing18,110.94363.0036.0040.4940.8516.0820.65
Five-Star Business Finance LtdConsumer Finance21,917.52749.9036.3236.2350.6514.9931.80
ICICI Securities LtdInvestment Banking & Brokerage24,680.39763.6522.0834.7912.9842.3147.58
Easy Trip Planners LtdTour & Travel Services8,045.0645.4059.9429.1727.7344.2865.13
Eris Lifesciences LtdPharmaceuticals12,152.77893.4031.8027.4213.9718.5114.28
CE Info Systems LtdSoftware Services10,636.771,967.1599.1827.1614.3921.7129.83
Aavas Financiers LtdHome Financing11,879.561,501.1527.6526.4726.6414.1414.74
Indiamart Intermesh LtdOnline Services14,909.842,488.6552.5324.0422.1114.43117.11

Note: The data in the above table is from 19th January 2024. The stocks are filtered using Tickertape Stock Screener using the following parameters:

  • Stock Universe: Nifty 500
  • Market Cap: Small-cap
  • 5Y Average Net Profit Margin: Set the limit to 5 to High (Sorted from highest to lowest)
  • 5Y Historical Revenue Growth: Set the limit to 10 to High
  • Return on Equity: Set the limit to 10 to High
  • 1Y Forward EPS Growth: Set the limit to 10 to High

Fundamentally strong smallcap stocks

NameSub-SectorMarket Cap (Rs. in cr.)Close Price (Rs.)PE RatioNet Income (Rs. in cr.)Return on Equity (%)Debt to Equity (%)
MMTC LtdCommodities Trading10,155.0067.706.501,562.27247.2614.35
Fine Organic Industries LtdSpecialty Chemicals13,987.084,562.0022.63618.1149.441.85
Castrol India LtdCommodity Chemicals17,551.98177.4521.53815.1546.162.65
Archean Chemical Industries LtdCommodity Chemicals7,405.67600.1519.36382.5645.184.85
IDFC LtdDiversified Financials19,815.81123.854.674,243.8941.360.00
Indian Energy Exchange LtdPower Trading & Consultancy12,200.20137.2039.89305.8840.721.76
Computer Age Management Services LtdDiversified Financials13,775.552,803.1548.29285.2439.8911.92
Gillette India LtdFMCG – Personal Products21,356.356,554.0060.04355.6838.450.01
Sanofi India LtdPharmaceuticals19,391.328,419.8031.25620.6035.451.85
Procter & Gamble Health LtdPharmaceuticals8,642.225,206.3537.66229.4733.561.60

Note: The information is dated 18th January 2024. We have listed the top 10 fundamentally strong small-cap stocks from Tickertape Stock Screener based on the following parameters:

  • Stock Universe: Nifty 500
  • Market Cap: Small-cap
  • Net income: Set to Positive – Set the lower limit to zero
  • Return on equity: Set to high 
  • Debt-to-equity ratio: Set to Low

Top 10 small-cap stocks – Based on 1-yr return

NameSub-SectorMarket Cap (Rs. in cr.)Close Price (Rs.)PE Ratio1Y Return (%)
Jindal SAW LtdBuilding Products – Pipes16,082.80505.9025.43332.58
Olectra Greentech LtdElectrical Components & Equipments13,614.321,658.65207.57246.49
Cochin Shipyard LtdShipbuilding22,773.59865.6574.74241.18
JBM Auto LtdAuto Parts22,344.571,889.65179.65241.00
Kaynes Technology India LtdElectrical Components & Equipments17,076.992,671.70179.38236.49
Ircon International LtdConstruction & Engineering19,191.22204.0525.08231.25
Apar Industries LtdElectrical Components & Equipments21,522.385,358.0533.75216.21
Welspun Corp LtdIron & Steel15,680.42599.4575.86165.48
Birlasoft LtdIT Services & Consulting21,442.08777.8564.67163.90
Engineers India LtdConstruction & Engineering12,564.46223.5536.29162.69

Note: The information is dated 18th January 2024. We have listed the top 10 fundamentally strong small-cap stocks from Tickertape Stock Screener based on the following parameters:

  • Stock Universe: Nifty 500
  • Market Cap: Small-cap
  • 1Y Return: Set to high (Sort from highest to lowest)

What are small-cap stocks?

Technically, small-cap stocks belong to companies that have a market capitalisation under Rs. 5,000 cr. In other words, shares of small-cap companies are called small-cap stocks.

Since these have scope for high growth, small-cap stocks are known to give higher returns compared to mid and large-cap stocks. However, it is also true that in a falling market, these stocks are impacted the most and, thus, become highly volatile.

Features of small-cap stocks

  • Small-cap companies are ranked 251 and above in terms of market capitalisation.
  • Small-cap stocks are relatively new businesses compared to mid and small-cap entities.
  • Small-cap stocks have the potential for high growth, which means the possibility of yielding high returns to their stockholders is also high.
  • Small-cap stocks can be great wealth generators when held for the long term.
  • Some small caps can be multibagger stocks if they generate very high returns.
  • Small-cap stocks are highly volatile as they are the most impacted in a bear market or downtrend.
  • Small-cap companies may have lower revenue and cash flow compared to others.
  • Prices of some small-cap stocks may be undervalued because they may not be as recognised as their counterparts.
  • Small-caps that do well over time become mid and large-cap stocks.
  • Small-cap stocks are the least liquid stocks as they are not well recognised and are traded less often.

What is the smallcap stock index?

The market has benchmark small cap indices that track the performance of small-cap stocks in the Indian stock market.

Who should invest in small-cap stocks?

Due to the associated high risk, small-cap stocks are well suited for investors with a high tolerance for risk. However, any stock market investor can include small-cap stocks in their portfolio for diversification purposes. But bear in mind that keeping a long-term investment horizon is necessary.

Factors to consider while analysing small-cap stocks

If you are thinking of investing in small-cap stocks, you need to analyse certain factors like, 

  • Company’s management – Irrespective of the size of the company, you must look into the top management, i.e., the CEO, CFO, etc. Check if they have run any business successfully before. Also, one pro tip would be to check if the top management has shares in the company. Having shares in their company can indicate that they trust their business and would work for its success.   
  • Company growth – One way to look at a company’s growth is to check how much a company is earning and how much money they have in hand. However, small-cap companies can have limited cash flow. So check if they have good annual revenue. Also, their operating margins indicate whether a company is good at turning its sales into profits.

Note that usually, companies can operate at a loss during their initial days. It would take time to build a client base and become profitable or break even. In the case of small-cap companies, analyse their long-term growth potential.  

Advantages of small-cap stocks

  • Good growth potential – Experts say that small-cap stocks have high growth potential and can perform well in the long term. 
  • Fairly priced – As DII (Domestic Institutional Investors) and FIIs (Foreign Institutional Investors) mostly prefer large-cap stocks, the price of the small-cap stocks is maintained fairly. 

Disadvantages of small-cap stocks

  • Liquidity – As fewer investors invest in small-cap stocks, it can be hard to sell.
  • Risk – Market conditions can easily affect small-cap stocks compared to large-cap or mid-cap stocks. However, an investor can manage this through the right way of portfolio diversification.    

Is it worth having smallcap stocks in your portfolio? 

Small-cap stocks can provide an investor with an opportunity to earn good returns on their investments. At the time of economic recovery or growth, actively managed small-cap stocks can outperform other stocks in the market. However, it is important to note that small-cap stocks are considered risky compared to mid-cap or large-cap stocks. Hence, evaluate your risk appetite and the sectors that have good potential to perform during uncertain times. 

Small cap stocks FAQs

What is a small cap?

A small cap is a type of market capitalisation of a company. The other categories are mid and large-cap.

What is a small-cap stock?

Shares of companies having a market capitalisation of less than Rs. 5,000 cr. are small-cap stocks. In other words, these are issued by small-cap companies in India. These are ranked 251 and above in the stock market.

How to find small-cap stocks?

One of the easiest, quickest, and simplest ways to find small-cap stocks is using Tickertape. Using its intuitive Stock Screener, which is built with over 200+ filters, you can get a list of NSE small-cap stocks based on your desired parameters. All you have to do is launch the Tickertape Stock Screener and add your desired filters, such as total debt, net profit margin, and so on. There you go, you have a list of small-cap stocks in India in no time! What’s more, you can add multiple small-cap shares to your Basket and buy/sell them at once using the Transactions feature.

What are the best small-cap stocks to buy today?

You can use Tickertape’s Stock Screener to filter the best small-cap stocks based on parameters that matter to you. Once you get a list of small-cap companies in India, use Tickertape’s Stock Pages to analyse individual stocks in order to make well-informed investment decisions.

What are the risks of investing in small-cap stocks?

Small-cap companies that issue such shares are relatively newer than mid-cap and large-cap entities. Although they have greater growth potential and are likely to offer better returns in the long term, they lack ample financial resources and efficient managerial skills like those of large-cap companies. This puts them at risk in a falling market, making them highly risky.

What are the benefits of investing in small-cap stocks?

Although small-cap stocks are risky, they have the potential to yield high returns. This makes them suitable investments for aggressive investors. When invested for long, small-cap shares can help accumulate wealth.

How to get the list of small-cap stocks in NSE?

You can get the list of small-cap stocks in NSE easily on Tickertape by following the steps below: 

Find the list of all small-cap stocks listed in the NSE.

How to get the list of small-cap IT stocks

You can get the list of small-cap IT stocks on Tickertape with just two clicks. Follow the steps below:

  • Login to Tickertape 
  • Go to Stock Screener  
  • Select ‘Smallcap’ under the ‘Market Cap’
  • Under the ‘Sector’ select ‘Information Technology’ 

How to get debt-free small-cap stocks in India? 

You can get the list of debt-free small-cap stocks in India by following the steps below: 

  • Login to Tickertape 
  • Go to Stock Screener 
  • Select ‘Smallcap’ under the ‘Market Cap’
  • Click on ‘Add Filter’ 
  • Search for ‘Total Debt’ 
  • Sort the ‘Total Debt’ from low to high and get the list of small-cap stocks with no debts.

What are the top small-cap stocks to buy in India?

According to the highest to lowest 1-yr return, these are the top small-cap stocks – Jindal SAW Ltd, Olectra Greentech Ltd, Cochin Shipyard Ltd, JBM Auto Ltd, Kaynes Technology India Ltd, Ircon International Ltd, Apar Industries Ltd, Welspun Corp Ltd, Birlasoft Ltd, and Engineers India Ltd.

Anjali Chourasiya
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