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India’s small-cap stocks are characterised by significant return potential interwoven with heightened market volatility. Constituting over 95% of all companies in the country, these small-cap stocks possess a market capitalisation of under Rs 5,000 crore ($604.16 mn).
Recent attention from investors highlights a growing trend towards India’s small-cap stocks, spotlighted by data from the Association of Mutual Funds in India (AMFI). According to AMFI, there has been a substantial influx of funds into the small-cap mutual fund category, amounting to a noteworthy ₹6,932.19 crore ($837.63 mn) during the period from January to March 2023. Additionally, AMFI underscores that this inflow has outpaced investments made in other mutual fund categories. Moreover, during the subsequent period from April to June 2023, the net inflow into the small-cap funds reached ₹5,101.68 crore ($616.45 mn).
Echoing this momentum, the recent surge in the Indian stock market indicates a remarkable revival of the country’s smaller businesses. As of July 17, 2023, India’s BSE Small-Cap Index has undergone an impressive surge of around 29%, escalating from 26,159 points on March 28th, 2023, to a notable 33,986.98 points.
In contrast, the BSE Large-Cap Index has shown a more gradual advancement, marking a growth of around 16% during the same period.
“Along with economic data improving, corporate profitability of small-cap companies can be expected to improve. Investors looking for decent returns & having a higher risk tolerance can look to invest in small caps,” said PGIM.
How to invest in India’s small-cap stocks?
Here are three Indian small-cap stocks for investors to consider, selected according to the weightage assigned by India’s Nifty Smallcap 250 Index, which evaluates the performance of the leading small-cap companies in the country.
KPIT Technologies
KPIT Technologies Limited, an Indian multinational enterprise, offers embedded software and product engineering services to the automotive sector. The company is headquartered in India’s Pune.
Between April to June 2023, the company witnessed a year-on-year rise in revenue from operations by 60%, reaching Rs 1,097.6 crore ($131.82 mn). Similarly, within this timeframe, KPIT’s net profits grew by 56.8% year-on-year, amounting to ₹133.9 crore ($16.08 mn).
The company’s stocks are listed on the Bombay Stock Exchange (BOM: 542651) and the National Stock Exchange of India (NSE: KPITTECH). KPIT’s stock has risen by 97.6% in the past year. It has a PE ratio of 44.96 and a price-to-book ratio of 18.71.
IDFC
Infrastructure Development Finance Company or IDFC operates as a non-banking financial company (NBFC) with a specialisation in investment services. The company provides an array of financial solutions, encompassing accounts, loans, cards, insurance, payment services, cash management solutions, foreign exchange, and online banking services.
The company’s total income rose by 33.71% year-on-year to Rs 29.91 crore ($3.59 mn) between April to June 2023. During the same period, IDFC’s witnessed a net profit of ₹264.15 crore ($31.72 mn), rising by 4.56% year-on-year.
IDFC’s stocks are listed on the Bombay Stock Exchange (BOM: 532659) and the National Stock Exchange of India (NSE: IDFC). Since last year, the company’s shares have gained 86.11%. Also, the company’s shares have a PE ratio of 4.46, a forward PE ratio of 31.75 and a price-to-book ratio of 1.64.
Furthermore, IDFC First Bank, a subsidiary of IDFC, has been performing well in 2023. “IDFC First Bank Limited has seen tremendous gains in market capitalization over just a few months, with incredibly strong momentum…IDFC First stands out with exceptional core income growth and with far better credit metrics,” said Daniel Tabbush, Asian bank researcher and consultant who publishes on SmartKarma.
Suzlon Energy
Suzlon Energy offers solutions in the field of renewable energy. The company’s product portfolio includes wind turbine generators and associated components, along with offerings in the realm of solar energy solutions. Moreover, the company renders services aimed at facilitating the functioning of wind turbine generators.
The company registered a 2.18% year-on-year fall in revenue, amounting to Rs 1,348 crore ($161.90 mn) for the quarter ended June 2023. During the same period, Suzlon’s net profit declined by 96% to Rs 101 crore ($12.13 mn).
Suzlon stocks are listed on the Bombay Stock Exchange (BOM: 532667) and the National Stock Exchange of India (NSE: SUZLON). Since last year, the company’s shares have risen by 188.5%. Along with that, the shares have a PE ratio of 44.96 and a price-to-book ratio of 22.75.
“The firm (Suzlon Energy) is…one of the largest domestic players and looks poised to benefit from a changing government policy. While its share price has doubled in less than six months…,” said Clarence Chu, Equity Research Analyst at Aequitas Research, who publishes on SmartKarma.
Editor’s note: All stock movement figures as of August 15, 2023.
