Small cap stocks outpaced mid- and large-caps in the past one year. The S&P BSE Smallcap index jumped 43.63 per cent to 10,829.06 in the past one year till May 8. On the other hand, the S&P BSE Sensex and S&P Midcap index rose 21 per cent and 39 per cent, respectively, during the same period.
Share price of ICVL Chemicals surged the most 1,636 per cent to Rs 220.90 on May 8 this year from Rs 12.72 on the same day a year ago. It was followed by Shreyas Shipping (1,536 per cent to Rs 449.25), Aplaya Creations (1,339.87 per cent to Rs 43.70), Indo Count Industries (843.72 per cent to Rs 436), Podda Developers (706.79 per cent to Rs 1,307) and Vipul Ltd (685.60 per cent to Rs 49.10).
Market experts have mixed views on the further movement of small cap stocks.
"The BSE Smallcap index will continue to see upward movement. With the improving macro economy of the country and increase in foreign fund inflow with further government initiatives, the retail participations would further increase as the confidence would further boost up, helping the S&P BSE Smallcap index to move further," DK Aggarwal, chairman and managing director, SMC Investments and Advisors, told Businesstoday.in.
However, Abhishek Anand, fund manager, Centrum Broking, says: "Considering the current market scenario and associated risks such as monsoon and US fed rate hike, we may see the small cap index taking a back seat for some time. Also, many small cap companies had moved ahead of fundamentals and valuations had become rich. We may see a correction in valuations owing to near term moderate quarterly performance, before the earnings start to improve."
FACTORS TO WATCH
As of now, the market is plagued with high volatility. It would therefore be advisable to exercise caution while investing in small cap stocks and choose sectors that hold promise.
Amarjeet Mauyra, senior research analyst, Angel Broking, says, "An investor should prefer a stock of a company having a reliable business model, better anticipated sales growth, sustainable operating margin and cash flow generation, attractive ROE (return on equity) and ROCE (return on capital employed) and the ones trading at lower price-to-earnings ratio compared to peers."
Here are few small-cap stocks which can give you robust return in the next 12 months:
1. Indag Rubber: The company offers complete range of application specific tread patterns for transportation industry with cost effective tyre solutions. In the past one year, the share price of Indag Rubber surged 167 per cent to Rs 175.70 on May 8.
For the quarter ended March 2015, the company registered a standalone net profit of Rs 9.48 crore, up 50 per cent, against Rs 6.34 crore in the corresponding quarter a year ago.
Mauyra of Angel Broking is bullish on Indag Rubber and says: "The company is anticipated to improve its volume growth in the treading segment on the back of recovery in commercial vehicle volumes and growth in road freight with growth in economic activity. Also, an increase in organised players' market share and the company's strong distribution network and strong brand are expected to aid its growth. We expect the company to report strong growth on the top-line and bottom-line front in the coming financial years. We believe the share price of the company can touch Rs 247 in the next few quarters."
2. Essel Propack: Essel Propack, a specialty packaging company, reported net profit of Rs 47.49 crore, up 65.53 per cent, for the quarter ended March 2015 against Rs 28.69 crore in the corresponding quarter a year ago.
"The company's strategy for accelerated growth in the high value non-oral care categories such as cosmetics, pharma, hair care, foods continues on course in this year, with share of non-oral care category presently stood at 39 per cent of total sales. Capacity and capability in international regions will drive the future growth. While most of the capacities are built up, the leverage on these capacities will aid in improving in margins. We believe the share price of the company can touch Rs 160 in the next 8-10 months," says SMC's Aggarwal.
The share price of the company has already jumped 93 per cent in the past one year to Rs 127.50 on May 8.
3. Action Construction Equipment: The company is engaged in the manufacturing of mobile crane in India. It has entered into series of marketing tie-ups with leading foreign companies like Autogru PM-Italy, Zoomlion-China, Maber-Italy, Tigieffe SRL-Italy, which facilitate the availability of latest technology and machines from around the world.
The share price of Action Construction Equipment jumped 84 per cent to Rs 37.25 on May 8 this year from Rs 20.25 on the same day a year ago.
For the quarter ended December 2014, the company registered net profit of Rs 2.60 crore, up 226.22 per cent, against Rs 0.80 crore in the corresponding quarter a year ago. However, net sales of the company declined 7.47 per cent - to Rs 144.72 crore for the quarter ended December 2014.
Mauyra of Angel Broking, says: "We are optimistic that the company would be able to maintain its numero uno position within the domestic pick-and-carry cranes segment. Further, the company's wide range of product offerings, wide pan-India distribution network, and recent cost cutting initiatives, put it in a strong position in comparison to its peers. Given the backdrop of strong earnings growth and RoE expansion potential, we assign a P/E multiple of 14 to our 2016-17E earnings per share of Rs 3.9 and arrive at a price target of Rs 54 for the stock."
4. Setco Automotive:The company is the third largest global auto clutch manufacturer with focus on the medium and heavy commercial vehcle (M&HCV) segment where it has an 85 per cent market share and is also a leading player in the Indian market.
The share price of the company jumped 172 per cent to Rs 245 on May 8 this year from Rs 90 on May 8 last year.
Anand of Centrum Broking, says, "We expect Setco to benefit from the economic recovery and the resultant increase in commercial vehicle sales, given its strong relationships with original equipment makers and leadership in the clutch business. We expect the share price of Seto may touch Rs 387 in the next few quarters."
5. MM Forgings: MM Forgings manufactures steel forgings with primary focus on the auto sector (around 76 per cent of sales). In the past one year, the share price of the company jumped 375 per cent to Rs 655.50 on May 8.
Anand says, "MM Forgings exports (around 73 per cent of sales) mainly to US where we expect strong demand on the back of economic growth, higher industrial spending and increasing replacement demand. The company is also expanding its capacity from 40,000 tonnes to 50,000 tonnes to cater to the increasing demand. The share price of the company can touch Rs 819 in the next 12 months."
For the quarter ended December 2014, the company booked net profit of Rs 13.05 crore, up 85 per cent, against Rs 7.05 crore in the corresponding quarter a year ago.