Before dividing into that, let's first see what is Market Capitalization.
Market Capitalization, in simple words, is the market value of the company’s outstanding shares. It is not the share price, but the value of the share.
Formula = Number of outstanding shares x share price.
To ensure that equity schemes follow uniform norms for defining large, mid, and small caps, the Securities and Exchanges Board of India (SEBI) has defined them as follows:
- Large-cap companies — 1st to 100th company in terms of market capitalization
- Mid-cap companies — 101st to 250th company in terms of market capitalization
- Small-cap companies — 251st company onwards in terms of market capitalization
You’ve heard a lot of people saying that small caps are not a favorable choice for your portfolio, but that’s not the full truth. As you can see from the above figure the first 250 are Large and Midcaps, so then suppose you’re investing in a large and diversified country like India, so you must also diversify your portfolio too.
Investing in Large and Mid-caps stocks is a good and wise choice, the benefits of that is :
- Growth
- Value
- Dividend
- Safety
Looks like a good bet, but everything comes with their cons too:
- High valuation
- High PE ratio
- if a crash can give huge losses to investors (Yes Bank)
- Most people can’t afford (MRF)
Now, let me tell you the hidden benefits of investing in small caps:
- lower valuation
- affordable prices
- future large/mid-caps (not every small cap)
- best for teenagers
If you’re a trader who does swing trading then small caps are just like crypto for you and, if you ask me which one would I prefer between small caps and crypto, I would prefer small caps because there are many benefits of it:
- can give crypto-like returns
- safer and regulated unlike crypto
- can benefit small business, good for the economy (always think country benefit)
- can also hold for long term if company performance is good (be next Jhunjhunwala)
Yes, there are operators in small caps which manipulate the small caps, but that’s also being done in crypto, but sooner or later SEBI will do something, just like they did on 10th August 2021, when BSE releases their small caps circular. you can read that here:
Small caps are for the youth of this generation because this generation is full of “Risk hai to Ishq hai” which means ‘If there is a risk, there is love(money)’.
Old people should not invest in small caps, they can invest if they have some extra bucks in their savings but not their savings, they should invest in govt. backed stocks like IOC, ONGC, CIL, etc.
Everything which I have said is my opinion, do your analysis before changing your strategy.
