How to navigate the risky yet rewarding small-cap market? 4 experts share insights
equity market. They have the potential to give you returns that beat the large caps; yet if they fall they have the potential to set you back by a pretty packet. And yet there are the experts who make money, in these very same tricky waters.
These very same experts give investors an idea of how experts decipher the small-cap shoals for investments. “The small-cap category demands intensive research to identify stocks and constant vigilance throughout the (investment) journey to build conviction on the thesis and the value proposition," says Anil Ghelani, Head – Passive Investments & Products, DSP Mutual Fund. Typically small caps have higher chances of sharp drawdowns as compared to large caps and are also relatively less liquid.
Hence it is important to focus on good quality stocks within this segment. While there are many factors to look at, some useful quality filters would be higher Return on Equity, lower Debt to Equity and consistency of earnings growth. “Certain areas which could be considered as negative would be high pledge of promoter holdings, lower liquidity, high volatility, etc," says Ghelani.
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