Smallcap Stocks: A Guide to Investing in High-Growth Companies

Smallcap Stocks: A Guide to Investing in High-Growth Companies
Reading Time: 5 minutes

Stocks in the stock market are often classified based on their market capitalisation as largecap, midcap, and smallcap stocks. This categorisation helps investors to make informed investment decisions.

Smallcap stocks are often a popular investment choice for those seeking higher returns, as they are stocks of small companies with market capitalization generally ranging between ₹500 crores and ₹5,000 crores. Smallcap stocks are different from large-cap stocks as they have a higher potential for growth, which may offer better returns in the long run. In this blog, we will look at what smallcap stocks are, their advantages and risks, and how to invest in them.

What are Smallcap Stocks?

Smallcap stocks are stocks of smallcap companies. In India, smallcap companies have a market capitalisation of less than ₹5,000 crores.

Smallcap stocks comprises up-and-coming young companies that are growing fast and are traded both on the BSE and the NSE. These companies have high growth potential, making them attractive investments for many investors.

Smallcap stocks are tracked by the small caps index, which comprises companies listed on the National Stock Exchange (NSE) with a market capitalization between ₹500 crores and ₹5,000 crores. The index provides a good representation of the smallcap segment of the Indian stock market.

What are the various features of Smallcap stocks?

  1. Highly volatile: The stocks of these companies are volatile since there is uncertainty about them becoming successful in the future. 
  2. High returns: Smallcap stocks generally yield high returns for any investors, especially in the shorter run. 
  3. Low liquidity: Small-cap companies have the least liquidity, making squaring off positions more difficult.

Here are some trending smallcap stocks of 2022

NameMarket Capitalisation (in crores)
EKI Energy1783.02
Bhansali Engineering1724.58
Heranba Industries1303.64
Manali Petrochemicals1180.43
Swaraj Engines1913.48
Likhitha Infrastructures951.70
Accelya Solution1728.37
Gujarat Themis Biosyn Ltd.938.65
Expleo Solutions1395.34
Supriya Lifesciences Ltd.1688.15

Is Smallcap stock a good investment?

Investments in small-cap stocks may be profitable. If an investor buys them at a good price and they have a growth potential that is greater than that of large-cap stocks or blue-chip businesses, they may experience a strong return.

Potential benefits of investing in small cap stocks include:

  1. Higher returns: Small cap stocks have the potential to provide higher returns than large cap stocks.
  2. Growth potential: Small cap companies have the potential to grow at a faster rate than larger companies.
  3. Diversification: Investing in small cap stocks can provide diversification benefits for a portfolio.

Compared to the stocks of larger, more established firms, small-cap stocks are riskier and more volatile, therefore investors should be extra cautious while conducting their research before making any investment decisions.

Risks associated with small cap stocks include:

  1. Higher risk: Small cap companies are more likely to experience financial difficulties and may have less access to capital than larger companies.
  2. Limited liquidity: Small cap stocks may have limited trading volume, making it difficult to sell shares quickly.
  3. Greater volatility: Small cap stocks may experience greater price fluctuations than large cap stocks.

Who should invest in small cap shares?

Investors with a high-risk appetite who want to invest in underpriced and under-recognised businesses and earn organically high returns (these returns are not influenced by larger financial institutions). Investors get quality stocks at a fair price when they invest in small cap shares.

How to invest in small cap stocks?

Investing in small cap stocks requires thorough research and analysis. The following are steps to consider when investing in small cap stocks:

  1. Research  NSE small cap stocks and find potential investments: Researching small cap stocks can help investors find potential investments. Investors can use tools like stock screeners to filter stocks by market capitalization. The CNX Smallcap Index comprises of 100 tradable, exchange listed small cap companies.
    BSE also introduced a new index called ‘BSE Small-Cap’ index to track the performance of companies with relatively smaller market capitalization.
  2. Analyzing financial statements and company performance: Investors should analyze financial statements and company performance to determine the financial health of the company. This can include analyzing revenue growth, earnings growth, and debt levels.
  3. Evaluating management and leadership teams: Investors should evaluate the management and leadership teams of

One can buy smallcap stocks individually or buy mutual funds or exchange-traded funds (ETFs) that invest in small cap stocks.
Funds and ETFs may occasionally own a range of equities and asset types, including small cap shares. Other times, the funds or ETFs may only invest in a list of small cap companies.

Investing in smallcap stocks via smallcase

You can also invest in a basket of small-cap stocks via smallcase. Simply go to or the smallcase app, and login via your phone number. Then, go to ‘Discover‘ and enter ‘smallcap‘ in the search bar and hit enter. You’ll find an array of stock portfolios that have smallcap companies. Just pick the one that fits your investment criterion.

Make sure that you do your diligent research before picking the right stock, considering your long-term investment goals and risk appetite. 

Investing in smallcap stocks can be a good way to diversify your portfolio and potentially achieve higher returns. However, it is important to do your research and analysis before investing in any stock, including smallcap stocks.

In conclusion, smallcap stocks are a segment of the Indian stock market that comprises of small-cap companies with high growth potential. Investing in smallcap stocks can diversify an investor’s portfolio and potentially higher returns. However, smallcap stocks also carry higher risks, and it is important for investors to conduct thorough research and analysis before investing in them.

Keep yourself informed and up-to-date on a variety of thematic sectors by reading the articles below.