While investing, many prefer to invest in low prices stocks. This strategy probably gives immense psychological satisfaction as they end up buying shares in HUGE quantity with little investment. More over , it is assumed that the price increase would be more from low price. For instance for Rs.1 to become Rs.2, is preceived as easier than Rs.100 becoming Rs.200 or Rs.1000 becoming Rs.2000. And the reality is many of the small cap stocks are low prices - most of them quoting lesser than their face value. If stocks are not worth even of their face value, then there has to be some serious issue. And there are many small cap stocks quoting in three digit and four digit prices. So let's stop confusing low prices stocks with small cap stocks.
Stocks are classified based on their Market capitalization which is arrived by multiplying the total number of shares with the current market price. And those stocks with less than Rs.1000 Crore market cap are termed as Small cap stocks. From 1000Cr to 10000 Cr market cap are termed as Midcap stocks and above Rs.10000 Cr market cap are Large cap stocks. In a natural transition, Smallcaps can transform into Midcaps and Midcaps into Largecaps over medium to long term. Hence the growth potential of can be manifold for long term investors. But Smallcap stocks can fail frequently due to various reasons like competition, leverage and lack of brand.
There are 3041 stocks which have market cap less than Rs.1000 Crores. Of this 527 stocks are trading in three digit prices and 26 companies are trading in four digit prices. Contrary to the belief of investing in low prices small cap stocks, high priced small cap stocks are the ones to watch out for. Perhaps these companies might issue bonus or go in for stock split to increase the number of shares. Though these corporate actions are not certain, there is a higher probability if their balance sheets supports with huge reserves.
So start looking for quality small cap stocks. Probably you may hit a multibagger!
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