In this article we discuss:
– What are small cap stocks
– Characteristics of small cap stocks
– Top 10 small cap stocks based on past 10 year returns
– How to find best small cap stocks to buy
– 15 best small cap stocks for 2021

What are small cap stocks

SEBI through it’s order dated 6th October 2017, has defined large cap, mid cap and small Cap Stocks as follows:

• Large Cap: 1st -100th company in terms of full market capitalization
• Mid Cap: 101st -250th company in terms of full market capitalization
• Small Cap: 251st company onwards in terms of full market capitalization

Based on current market capitalization, small cap stocks therefore, translates roughly into companies with market cap of 8500 crores or less.

Characteristics of small cap stocks

Low Liquidity

Small cap stocks are less liquid than large cap or mid cap stocks due to limited size. This can sometime limit the amount of capital one can deploy on a single small cap stock.

High Volatility

Due to the same reasons, small cap stocks are usually more volatile. A buy order of 10 crores from an AMC for a small cap stock whose market cap is 100 crores will probably lead to upper circuit, likewise, a sell order of similar magnitude could lead to lower circuit.

Under Valued

Also for the same reasons, small cap stocks tend to be undervalued relative to large and mid cap stocks. Inability to deploy meaningful capital into these stocks results in limited motivation from fund houses to properly research these stocks

High-Risk, High-Return

Potential for up or downside gains is significant with small cap stocks. It is far easier for a company with 100 crores sales to double its revenue than one with 100,000 crores sales. Unfortunately, the reverse is also true.

Top 10 small cap stocks based on past 10 year returns

As of end FY20, top 10 small cap stocks are as follows:

Stock	10Y Gain	Sector	Industry	Market Cap (Cr)
La Opala RG	3319%	Glass Products	Glass & Glass Prodcuts (CB)	2299.92
V-Guard Industries	2357%	Electrical Equipments	Electrical Equipments (CB)	7328.21
Cera Sanitaryware	1675%	Ceramics	Sanitaryware (CB)	3593.52
Can Fin Homes	1643%	Finance	HFC	6182.47
Indo Count Industries	1121%	Textile	Blended	3034.03
Aegis Logistics	1006%	Logistics	LPG Terminal & Chemicals	7016.50
TTK Prestige	970%	Consumer Durables	Domestic Appliances (CB)	8281.27
Aarti Drugs	948%	Pharma	Bulk Drugs	1531.27
Excel Industries	891%	Chemicals	Chemicals	1106.15
Ratnamani Metals & Tubes	835%	Steel	Tubes	5937.67

One lakh invested in La Opala in FY10 is worth nearly 35 lakhs today! Also note that as much as half of the best small cap stocks from the last decade were top consumer brands.

How to find best small cap stocks to buy

The usual starting point is to screen the traded stock universe by putting an upper limit on the market capitalization for small cap stocks. We look for a highly profitable business with strong cash-flows and low debt that is maintaining a consistent but high growth rate. This will give us an initial list, which can be digged in further.

We use the following screen:

15 best small cap stocks for 2021

Running this screen gives us a list of following 15 stocks:

Name	CMP Rs.	ROA 12M%	Sales 10Y%	P/E	M-cap Rs.Cr.	PAT 10Y%	P/S	ROE%	ROE 5Y%
IOL Chemicals	696.45	44.05	18.49	10.13	4088.54	43.06	2.2	56.93	37.95
Sh. Jagdamba Pol	304	27.84	20.62	9.41	266.24	37.4	1.39	34.66	35.98
Bharat Rasayan	8827.7	24.32	28.45	23.16	3751.77	39.3	3.28	32.91	32.91
Alkyl Amines	3160	32.53	16.56	31.11	6449.56	34.09	6.64	41.99	29.94
HLE Glascoat	1410.25	23.23	23.89	46.58	1823.6	31.88	4.83	52.6	28.94
Tasty Bite Eat.	10517.7	19.79	20.18	78.02	2698.84	19.41	6.94	27.84	28.86
Vidhi Specialty	134.5	22.07	12.19	20.27	671.76	28.35	3.15	29.65	28.02
KMC Speciality	19.2	21.43	27.4	32.59	313.15	28.34	3.4	26.17	25.93
Assoc.Alcohols	246.55	25.99	17.02	10.52	445.74	45.51	0.99	29.15	23.86
Chamanlal Setia	89.7	15.56	15.73	5.93	464.05	22.29	0.55	20.99	23.73
Poly Medicure	485.1	15.97	17.63	39.13	4280.86	19.71	5.93	23.47	21.72
Vaibhav Global	2013.2	23.47	19.4	28.58	6538.27	18.19	2.96	26.13	21.44
Axtel Industries	237.4	17.48	13.93	22.71	383.51	32.3	3.39	20.25	20.82
APL Apollo Tubes	3239.1	12.04	28.9	30.08	8077.49	24.72	1.1	22.07	20.78
Transpek Inds.	1794.15	15.99	17.43	13.66	1002.13	30.68	1.9	22.58	20.56

Of these 15 stocks, 6 stocks, namely, IOL Chemicals, Sh. Jagdamba Polymers, KMC Speciality, Associated Alcohols, Chamanlal Setia, Transpek Industries. are already introduced in our best multibagger stocks article. Additionally, 2 stocks, Poly Medicure & Vidhi Speciality was discussed under Hidden Gems Stocks sections. Rest 7 stocks are introduced below.

Bharat Rasayan

Bharat Rasayan Limited is engaged in manufacturing of pesticides-technical, formulations and its intermediates.

The Company primarily offers Metaphenoxy Benzaldehyde. The Company’s products are Insecticides, which include Acetamiprid, Bifenthrin, Chlorpyrifos, Cypermethrin, Imidacloprid, Permethrin and Thiamethoxam; Herbicides, which include Clodinafop Propargyl, Cloquintocet Mexyl (Safener), Diuron and Metsulfuron Methyl; Fungicides, which include Tricyclazole and Myclobutanil; Acaricide, which include Fenpyroximate, and Intermediates, which include Meta Phenoxy Benzaldehyde and Para Chloro Benzyl Cyanide.

The Company’s plants are located at Rohtak, Haryana and Bharuch, Gujarat. The Company’s plant at Haryana, has a capacity of 5,000 metric tons (MT) per annum and also facilities for bulk packaging of formulations.

Alkyl Amines

Alkyl Amines Chemicals Limited is engaged in the business of specialty chemicals. The Company is involved in the manufacture of organic and inorganic chemical compounds catering to both domestic & International markets.

Company supplies amines and amine-based chemicals to the pharmaceutical, agrochemical, rubber chemical and water treatment industries. It has two manufacturing sites with over nine production plants and related utilities at Patalganga and Kurkumbh in Maharashtra. The Company’s subsidiary is Alkyl Speciality Chemicals limited.

Its Products Include Methylamine, Ethylamine, Isopropylamine, Propylamine, Butylamine, Ethylhexylamine, Cyclohexylamine, Diallylamine, Dimethylpropylamine, Di-Methylbutylamine, Mono-n-Butylamine, Diisobutylamine, Hydroxylnovaldiamine, Imino Bis Propylamine, Methylamine Hydrochloride and Dimethylimidazolidone.

HLE Glascoat

HLE Glascoat Limited, formerly Swiss Glascoat Equipments Limited is an India-based company engaged in designing and manufacturing of carbon steel glass lined equipment.

The Company’s products include AE & CE type reactors, rotary conical vacuum dryer (RCVD), agitated nutsche filter and drier (ANFD), heat exchanger/condenser, receivers/storage tanks, dryers, filters, columns and agitators. The Company offers accessories, such as valves, pipes and fittings.

The Company offers its products to pharmaceutical/active pharmaceutical ingredient (API), specialty chemicals, dyes/colors, agro chemicals, food processing and allied industries.

Tasty Bite Eatables

Tasty Bite Eatables Limited is engaged in the business of manufacturing and selling prepared foods. The Company offers a range of ready-to-serve (RTS) ethnic food products under the brand name Tasty Bite and Frozen Formed Products (FFP).

Its business segments include Consumer business and Food Service business. Its prepared food consists of RTS products and intermediate food products, such as prepared meals, frozen formed foods and sauces. It also provides quick service restaurants (QSR) chains.

The Company offers its products in various categories, such as rices, including Family Size Brown Rice, Family Size Basmati Rice, Moroccan Pilaf and Brown Rice Biryani; Asian noodles, including Szechuan, Peanut Satay, Thai Vegetable and Teriyaki, and spice and simmer, including Korma, Kashmir Curry and Tikka Masala.

It has manufacturing facility in Pune.

Vaibhav Global

Vaibhav Global Limited is an electronic retailer of fashion jewelry and lifestyle accessories.

It primarily sells its products on its television shopping and Web platforms. The Company owns and operates the Liquidation Channel in the United States, and Jewelry Channel in the United Kingdom.

In addition to electronic retailing, the Company also engages in traditional business-to-business wholesale distribution through STS Jewels Inc.

The Company offers a range of jewelry and non-jewelry products. It manufactures and exports various kinds of jewelry, colored gems stones, precious and semi-precious stones. It offers fashion jewelry, including bracelets, bangles, earrings and studded jewelry. Its fashion accessories and lifestyle products include watches, handbags, scarves, home decor, bed linen, pillow covers and towels.

Its plants are located in Jaipur and Mumbai.

Axtel Industries

Axtel Industries Limited is engaged in manufacturing of food processing plants and machineries. The Company supplies process engineering equipment and turnkey systems to the food and pharmaceutical industries.

It offers process equipment under various categories, including solids handling, storage and discharge, sieving and straining/cleaning and grading, size reduction, mixing and blending, and specialized process equipment.

Its solids handling products include sack tip stations, bulk loaders, belt conveyors, screw feeder and conveyors, screw feeder with integral valves, dual tunnel diverter valves, z-bucket elevators, cyclones, reverse jet filters, and horizontal reverse jet bin filters.

Its storage and discharge products include process tanks, outdoor storage silos, intermediate bulk containers, table feeders, knife gate valves, butterfly valves and big bag handling systems.

Its size reduction products include hammer mills, nibblers, cone mills, shredders and roller mills.

APL Apollo Tubes

APL Apollo Tubes Limited is a steel tube manufacturer. The Company is engaged in the business of production of electric resistance welded (ERW) steel tubes.

The Company manufactures black pipe, galvanized pipe, pre-galvanized pipe and coils. Its products include MS Black Round Tubes, Galvanized Iron Tubes, Pre Galvanized Tubes, Hollow Sections, API Tubes and Dynamically Balanced Tubes. Its special products include hollow section pipe, window section, flat oval/capsule section, handrail, d-section, elliptical tube and narrow section.

Its products’ applications include liquid transmission, idlers, mechanical and general engineering, water wells, fencing, underground piping, refineries, scaffolding, cabling and ducting, automotive (bus body), greenhouse structures, construction, automotive, storage system and transmission tower.

Company has over six manufacturing facilities that are located in Sikandrabad, Uttar Pradesh; Bangalore, Karnataka; Hosur, Tamil Nadu and Murbad Maharashtra.

Conclusion

Investing in small cap stocks is a high-risk, high-reward game. It is important to understand the strength of the underlying business before considering to invest.

Picking small cap stocks wisely can be highly rewarding. As we presented in this article, the top 10 small cap stocks generated huge returns in the past decade.

 We also presented 15 stocks that have potential to generate strong returns going forward. Of these 15 stocks, 6 stocks, namely, IOL Chemicals, Sh. Jagdamba Polymers, KMC Speciality, Associated Alcohols, Chamanlal Setia, Transpek Industries. are already introduced in our best multibagger stocks article. Additionally, 2 stocks, Poly Medicure & Vidhi Speciality was discussed under Hidden Gems Stocks section. They were not repeated again – interested readers can refer them from the respective sections. Rest 7 stocks are introduced above.

This article is for information purposes only and may not be considered as investment advice. Please do your own research, or subscribe to our stock advisory service for formal advice.

Credits

1. Company profiles – Reuters
2. Chars – Screener

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