In stock markets, ‘Small Cap’ refers to companies with Small Capitalisation of less than INR 5000 crores. The shares of these companies are known as Small caps. These companies are relatively small in size, but they have the potential to generate high returns for investors. Small Cap companies form the bulk of companies in India.
Some Benefits of Small Caps are:
1. They have high growth potential and scope for supernormal returns.
2. They can beat large cap stocks by a wide margin and thus generate alpha for investors’ portfolios.
Dis-Advantages of Small Caps are:
a) They carry a higher risk due to the uncertainty in terms of future growth.
b) Small caps can be very volatile.
c) They come with liquidity risks.
d) Identifying good Small cap companies is not easy for retail investors.
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