Seven out of top 10 Asian small-cap funds are Indian

ndian funds have grabbed seven out of the top 10 spots in the league table of leading small-cap funds across , thanks to some canny stock-picking amid growing investor appetite for cheap with potential to deliver multi-bagger returns. 

An analysis of nearly 300 Asian small-cap schemes shows leading the charge, delivering an 82% return over the past year. Managed by Vinit Sambre, who has been with DSP BlackRock for a little over three years, this fund has also soundly beaten the 58% rise of BSE’s Small-Cap Index since August 2009. The 30-share benchmark Sensex has gained 20% during this period while the wider BSE 500 Index is up 27%.

The other six schemes — and ING Vysya CUB — have given investors returns between 44% and 57% on a trailing 12-month basis. These schemes manage anywhere between `46 crore and `954 crore.

Four of these funds were launched during the peak of the previous bull run between January 2007 and March 2008, and investors in them have also had to endure a massive erosion in their initial investment in the downturn that followed.

Mutual fund tracking firm Value Research called the DSP fund as an impressive product in the entire “small-cap universe”, noting that the stocks held by it were “credible, known names and there is a marked absence of momentum in the portfolio”. The fund’s holding includes companies with a high return on equity and strong leadership niches in their industries.



Value Research CEO Dhirendra Kumar said the closed-ended nature of some of these funds helped them weather the turbulence. “These funds did not face redemption pressures through the declining phase. This, in turn helped them invest for the longer term,” he said.

The DSP fund became open-ended in June this year and fund manager Mr Sambre has kept nearly 10% of his `311-crore corpus in cash to meet potential redemptions and to latch onto any opportunity in the market.

There are 10 small-cap funds in India, which manage roughly `3,450 crore in stocks. These account for just 2% of the total AUM under equity schemes.

Market experts say that as many large-cap stocks became fully priced and relatively unattractive over the past year, the rally shifted to small caps. Stocks such as cooler maker Symphony and luggage maker VIP Industries have led the small-cap charge in the market. Ahmedabad-based Symphony has surged 830% while VIP has risen 548% in the past 12 months. In comparison, top two gainers on the Sensex — Tata Motors and Tata Consultancy Services — are up 135% and 61%, respectively.

“Many small caps with excellent businesses were trading at a pathetically low valuations — many were trading below book value and at dividend yields of 5-7%,” says Deven Choksey, chief executive officer at KR Choksey Shares & Securities. “They just got purchased heavily.”

Even though small-cap funds have delivered solid returns in the past one year, experts say that investors must be cautious and have just 10-15% of their equity exposure in such funds or companies. This is largely because of the volatile nature of their stock performance.

“Investors should have a strong stomach and the ability to

withstand substantial declines in such funds,” says Mr Kumar at Value Research. 

small stock

If you follow smart money and chase growth, now is a good time to go for bargain hunting in the small- and mid-cap stocks. Big companies are acquiring global scale, but it's the small companies that are playing a stellar role in the economy and where the true growth story is. They (the small companies) straddle a wide variety of growing and sometimes niche business that big companies usually don't get into. And these businesses are extremely profitable.

While the BSE Sensex companies recorded a solid revenue growth of 34 per cent in 2006-07 over the previous financial year, the growth in profits in the same period was 36 per cent. Profits were higher at 42 per cent in the companies that constitute the BSE's Mid-cap Index, despite a lower revenue growth of 22 per cent. But the biggest growth, by far, came in the BSE's small-cap companies that saw revenues increase by just 16 per cent, but profits zoom by an astounding 381 per cent. Little wonder then, the BSE's small- and mid-cap indices have been outperforming the dominant Sensex stocks since the beginning of this year (see Smaller Stocks Shining).

Now, smart money too is chasing these stocks. Mutual funds are increasingly launching new funds that are targeted purely at the small- and mid-cap space. ICICI Prudential, Reliance, Franklin, and HDFC have launched small- and mid-cap funds and are expected to invest about Rs 3,500-4,000 crore in these stocks. The flows will keep interest alive in this segment. Brokers, too, have begun to get bullish about the sector-and with good reason. Rajen Shah, Chief Investment Officer, Angel Broking, says he is "extremely bullish" on small- and mid-caps because there are dozens of such stocks that have been 'under-owned' and have underperformed the market despite great potential.

On Attractive Grounds

• Small- and mid-cap companies have outperformed the Sensex since January
  
  
• Fund houses are launching funds, increasingly targeting this segment
  
  
• Foreign investors and high networth individuals are increasingly buying smaller stocks
  
  
• Companies with the ability to scale up will get higher valuations
  
  
• Many good and growing businesses are available at attractive prices
  
  
• Selectively build a portfolio with growth stocks and monitor it periodically

The time has come

For a long time, the markets focussed on large companies. Foreign institutional investors were investing in big companies because they could buy and sell large quantities of these stocks without disrupting the daily trading. As a result, small companies underperformed the markets. "Since October 2005, the BSE Sensex moved from a level of about 7,500 to around 14,500, but these smaller stocks have barely grown by 5-10 per cent. Many currently trade at P-E multiples of only 7-10, represent fast growing businesses, and are also attractively priced. In the next few months, there's about 20-30 per cent upside to their valuations," says Shah.

Among his favourites are Ballarpur Industries, Coromandel Fertilisers, Atlas Cycles Haryana, Finolex Industries and VST Tillers. Some small-caps are in booming segments and also own undervalued assets. Bangalore-based farm equipment company VST Tillers, for example, has a market cap of about Rs 80 crore (in early June), but its land holding in Bangalore alone is worth Rs 160 crore, notes Shah. The company, which posted a net profit of Rs 3.6 crore on gross sales of Rs 40.73 crore in Q3 of 2006-07, is also expected to gain from the government's increased investment in the farm sector.

"Small- or mid-sized companies are the ones that represent great investment opportunity"

Ajay Parmar

Ajay Parmar

Head (Research), Emkay Share and Stock Brokers

His Favourites
AIA Engineering, Elecon Engineering, Everest Kanto, Garware Offshore and Great Offshore

"The value driver of a stock is its business scalability. This requires a lot of commitment from the company"

Rajat Rajgarhia

Rajat Rajgarhia

Head (Research), Motilal Oswal Securities

His Favourites

Ashapura Minechem, Dena Bank, Sasken Comm. Technologies, Shasun Chemicals & Drugs, and Shriram Transport

"You must do your homework in picking the stocks with strong fundamentals. Accurate stock selection is very important"

D.D. Sharma

D.D. Sharma

Senior VP (Research), Anand Rathi Securities

His Favourites
BOC, Hind Dorr Oliver, India Glycols, Jupiter Bioscience and Tayo Rolls

"Poor liquidity of smaller stock has been a concern, particularly among institutional investors, who for that reason prefer large-cap stocks"

Pranav Parekh

Pranav Parekh

Analyst, Edelweiss Securities

His Favourites

Chambal Fertilisers, Greenply Industries, Indo Asian Fusegear, Oriental Hotels and Sirpur Paper Mills

"If the stock is good, money has to chase it. Liquidity takes care of itself"

Rajen Shah

Rajen Shah

Chief Investment Officer, Angel Broking

His Favourites

Atlas Cycles, Ballarpur Industries, Coromandel Fertilisers, Escorts and Finolex Industries

Shah's investment principles are based on under-owned companies, compelling p-e multiples (in the range of 7-11), a good management, and significantly underperforming stocks. Others in the market concur with his views. Says Rajat Rajgarhia, Head (Research), Motilal Oswal Securities: "With robust growth in the economy, there are many companies that have made large investments in their businesses. Their business models are also sound and scalable. These companies can offer very good return on the stock market." The valuations of many of these companies are already increasing. Rajgarhia prefers stocks such as Shriram Transport, Dena Bank, Sasken Communication Technologies and Ashapura Minechem. He looks in a stock for a sound business model, its scalability, management's vision, expected earnings, and a reasonable price.

There are many small companies in it, auto, pharma and the entertainment industries with good potential to grow. Says Ajay Parmar, Head (Research), Emkay Share and Stock Brokers: "Today, money is not a problem for talent and enterprise in India. Many pharma companies in India, for example, are still small- or mid-sized companies, but have excellent managements and growing businesses. Companies of this kind are the ones that represent great investment opportunity." He also looks for a unique business model where the companies have a profitable niche. His picks include AIA Engineering, Everest Kanto, Nucleus Software Exports, Panacea Biotech and NIIT Technologies.

Next up: Micro-caps

They have market capitalisations of less than Rs 1,500 crore, according to the recently concluded DSP Merrill Lynch Mutual Fund's Micro-cap Fund. "Within this criteria (of micro-cap), we will focus on those companies that have had a consistent record of net profit and have shown a tendency towards going after good quality management," says Soumendranath Lahiri, Senior VP & Co-head (Equities), DSP Merrill Lynch Mutual Fund. "The businesses of these companies should obviously be scalable and show a strong possibility of getting re-rated."

Companies, whose net profits have consistently grown by over 30 per cent, stand a good chance of getting re-rated. However, micro-cap companies are typically ones that are open to higher risks as compared to mid- or large-cap companies. Says Lahiri: "Largely, micro-cap companies are promoter-driven and have shown erratic growth. The risk associated with this segment is greater. There are chances that some of these companies may fail to make the transition."

Micro-caps are likely to be a big area of activity, believes Lahiri, and companies within this category will also offer the opportunity for multi-fold increase in investments. Large-cap companies (market cap over Rs 5,500 crore) have seen a net profit growth of only 20 per cent on average. Mid-caps (market cap of up to Rs 2,500 crore) have seen an average net profit growth of 25 per cent, while the small- and micro-caps are likely to witness a profit growth in excess of 30 per cent, feels Lahiri.
-Shamni Pande

Select stocks only

Sometimes the going may get tough in the middle. Smaller stocks could be volatile over the short-to-middle term. In a market downturn, they tend to get battered more than the large-cap stocks. Their returns also may be poor over small-to-medium-term because of low liquidity. So, a time horizon of less than three years could prove to be disastrous. Says D.D. Sharma, Senior Vice President (Research), Anand Rathi Securities: "Mid-cap stocks tend to offer good returns in the time horizon of at least 3-5 years. So, you have to be patient." Sharma, too, is bullish on the segment with a long view; some of his great investments include Elecon Engineering, Moser Baer, and Balaji Telefilms.

Price matters

If you invest during peaks and things don't go as expected, you may end up losing money; so have a careful look at the entry price. "Poor liquidity (tradability) of smaller stocks has been a concern, particularly among institutional investors, who for that reason prefer large-cap stocks. But things are already changing," says Pranav Parekh, Analyst, Edelweiss Securities, who likes Sirpur Paper Mills, Chambal Fertilisers, Oriental Hotels, and Indo Asian Fusegear, among others. "Of late, institutional investors are increasingly showing interest in these stocks, some of which can give pretty good returns," he adds. Shah says mutual funds and FIIs are already "rediscovering" small- and mid-cap stocks, infusing money into them and boosting their valuations and liquidity. That's good news for the retail investors who worry that their investments in smaller stocks risk poor liquidity. "The next six months will see unlocking of a lot of value in these stocks. If the stock is good, money has to chase it. Liquidity takes care of itself," adds Shah.

It's not that the entire small- and mid-cap space will do well. So, investors need to tread carefully. Many companies in this segment are family-run businesses that tend to compromise on corporate governance and disclosures. "Don't think that the entire mid-cap segment is worth investing; you must do your homework in picking the stocks with strong fundamentals. Accurate stock selection becomes more important in a well-priced market like we have currently," says Sharma. There are also risks in scaling up a business. Only those companies that can add capacities and expand their businesses deliver handsome shareholder returns. "The value driver of a stock is its business scalability. This requires a lot of commitment on the part of the company, which is not easy to assess," says Rajgarhia.

Don't just invest in a stock here or there. The key is to get a decent mix in your portfolio. "Start with the right sector and drill down to good-quality companies with competent management. Have a portfolio of at least 10 stocks, not just 2-3. It's the whole basket that will give you returns. Two-three stocks could become multi-baggers, 3-4 could go up modestly, and the rest could just fail," says Sharma. Parekh, on the other hand, advises a bottom-up approach to building a portfolio, starting from the right company rather than the right sector. "There can't be any hard and fast rules in picking the stocks. You could start with a fast growing sector of the industry. Or you could treat an individual stock on its own merit," says Rajgarhia.

"In building my portfolio, I won't allot more than 10 per cent to any one industry and more than 7 per cent to any one company," says Shah. With the broader markets meandering, now's the time to accumulate smaller stocks at lower prices. They are well poised to pay back.

Mid- and Small-Cap Mania

Periodically, the stock markets go through a mid-cap and small-cap excitement. We are in such a stage currently. Over the last one year, the small- and mid-cap indices have outstripped the large cap indices by wide margins. During this period, the BSE Small Cap Index is up 129 per cent and the BSE Mid Cap index is up 104 per cent. During the same period, the Sensex has gained 61 per cent. This performance is also reflected in the typical mutual fund as well. The average large-cap focussed funds are up an average of 72 per cent while mid and small cap funds are up 117 per cent. There's also no shortage of analysts proclaiming that the smaller companies is where the action is.

However, as always, investors need to be extremely wary of this space. Volatility and liquidity have always scuppered investors' gains in this space, mostly because by the time the mass of investors notice the action, things are already over the hill. You can make money in these stocks, but you need to be careful.

So let me give you a different perspective on small and mid-cap performance. One-year and six-month and year-to-date comparisons with the Sensex are all very well, but if you look just a little way further back, there's a different story to be told. From the peak that markets hit in January 2008, the Sensex is still down about 15 per cent. The BSE Mid Cap index, however is still down 31 per cent and the BSE Small Cap Index 36 per cent. The Small Cap Index may have risen 215 per cent from the bottom in March 2009, but to reach that bottom, it had fallen to one fifth its value. It takes a lot more than a 215 per cent gain to wipe out that kind of a fall.

As cautious investors know, these stocks rise a lot more than the large caps and then they fall a lot more too. This means that we need to have slightly different ground rules for such stocks. Here's how I think you should approach this space. The most important thing is that smaller companies should never be a major chunk of your portfolio. Everything depends on your personal risk profile but I doubt whether anyone should have more than 20 or 30 per cent of their equity portfolio in small caps.

Secondly, this is one area where investing through an open-ended mutual fund dedicated to smaller companies makes even more sense than otherwise. There are just about 60 or 70 investible large-cap companies in India but hundreds of smaller ones. The quantum and quality of information about many of these is several orders of magnitude poorer than large-caps.

According to the Value Research capitalisation criteria, companies totalling up to 70 per cent of the total market cap of the BSE are large cap companies. These are just 77 in number currently. Mid-cap companies are another 20 per cent of the total market cap and these number 209 currently. Small caps are the remaining 10 per cent and they are a humongous 2,899.

There could be a few hidden gems in that long tail but there's a lot of garbage as well. Since investors are eternal optimists, they firmly believe that they'll get that one gem that will turn out to be the next blockbuster. But let's face it. The chances of doing so are not great. Choosing the right stocks at the right time is simply too large an exercise to be feasible for the individual investor. When the markets start tanking, investing through a fund can also provide better liquidity. In small and mid-cap stocks, trading volume dries up very quickly in a negative phase. If you have invested through an open-end fund, you can always get out at a day's notice, no matter what.

At the end of the day, it's good to hear about smaller stocks doing well, and there's no reason why any investor cannot participate in the gains. However, the risks are higher and the traps are well-hidden. You need to go into this with open eyes and open ears.

A small-cap strategy

An investor with a wide exposure to small caps can beat the Nifty.

Astronomers say life exists on earth because of the Goldilocks Principle. The planet is neither too hot nor too cold; it's just the right temperature like the porridge Goldilocks ate. The investor's equivalent would be the stock, which is receiving just the right amount of attention.

While being a gross over-simplification, it is true that over-hyped stocks also tend to be inflated in price. Completely ignored stocks can continue to be ignored, and under-priced. Of course, there is subjectivity involved in judging the ‘right amount’ of attention. Are we talking substantial institutional coverage and occasional headlines? Are we talking ‘passing mentions’ in business channels or single column items in pink papers?

Any of these may qualify because investment is a subjective exercise. Some prefer to enter a stock early before it has institutional support. Others enter only when there is solid institutional coverage. Still others only enter when it's a big company and making headlines.

Quite often, the attention is a function of size. Big companies are rarely completely off the radar because media and institutional investors track them with dedication. Quarterly statements are dissected and usually, there is guidance and forward projections. Changes in management, in marketing strategy and ad budgets are also noted and debated.

Midcaps also make the news with regularity. At the least, analysts collate quarterly results and do the slicing and dicing. Small caps very rarely make the news unless something unusual happens. Some small caps never make the news beyond statutory coverage at the time of IPOs.

The low risk investor focusses on the highly-covered large caps. These are generally the least volatile segment due to the widely-disseminated information. Of course, stocks as a class are always volatile assets but there are two further safety factors available for large caps.

One is that they contain large institutional holdings and that puts a floor on price. The second safety factor is that they are liquid; there is always a chance of cutting losses. The medium risk investor focusses on mid-caps. Here too, there is usually institutional coverage. Volatility tends to be more than with large caps. But there is usually enough reserve liquidity to cut losses and enough institutional holding to put floors on prices.

Only big risk-takers touch small caps because these tend to extra volatility and carry extra risks. There is usually no institutional holding and hence, no floor. There is also a great deal of opacity and absence of information in terms of governance, marketing strategy (if any), etc.

However, given the lack of information, any coverage of a small-cap is worth noting. It usually denotes either an exceptionally favourable event or an exceptionally unfavourable one. There is a high “signal to noise” ratio because there is little noise.

Between May 2004, when the first UPA government took charge, and January 2008, there was a bull run. The Nifty, which is of course, large-caps, generated returns of around 392 per cent from trough to peak. The NSE Midcap Index registered returns of around 440 per cent and the BSE Small Caps returned 704 per cent. Between January 2008 and October 2008, the Nifty lost 65 per cent while the Midcaps lost 73 per cent and the Smallcaps 77 percent.

If we assume passive holdings between May 2004-October 2008, the Nifty was up 77 per cent (CAGR 15.5%) while the Midcaps was up 46 per cent (CAGR 10%) and the Smallcaps was up 85 per cent (CAGR 16.5%). The movements can be viewed in the light of the theory that high risk needs to be associated with higher returns. The Nifty follower risked less than the small cap dabbler but on balance, gains less. The Midcaps investor was the worst off.

However, there is another practical point. The Nifty is easily tracked and hedged, via index funds and derivatives. The Midcaps comprises 234 companies, while the Small Caps comprises 474 companies and neither is covered by index funds. Both are impossible to track for small investors.

At best, we can say is that an investor with wide coverage of small caps would have a good shot at beating the Nifty. But the excessive volatility makes it possible that there would be a large negative (or positive) tracking error in benchmarking any small caps portfolio to the Smallcaps Index. This is where some judicious filtering on the basis of the Goldilocks Principle may help.

Investors should be cautious of small caps

While the slowdown in the economy hasn’t been as much as expected, smaller-sized firms have been affected more than their larger peers. For this reason alone, small-cap stocks should actually be underperforming...

The Bombay Stock Exchange’s (BSE) Small-Cap Index has risen by 160% from its lows on 9 March. The BSE Mid-Cap Index isn’t far behind, with returns of 144% during the same period. That’s far more than the 105% rise in the BSE Sensex and the 110% rise in the BSE-100 Index.

One would have imagined that investors would be wary about investing in the less liquid mid- and small-cap stocks after last year’s harrowing experience. The mid- and small-cap indices had corrected by 75% and 80%, respectively, from peak to trough, while large-cap indices had corrected around 60%. But with markets across the world doing well and sentiment reviving, the past seems to have been forgotten. What’s more, while the slowdown in the economy hasn’t been as much as expected, smaller-sized firms have been affected more than their larger peers. For this reason alone, small-cap stocks should actually be underperforming.

The fact that the reverse is happening perhaps points to exuberance among so

The fact that the reverse is happening perhaps points to exuberance among some domestic market participants, and it may be time for investors to be cautious about small-cap stocks and perhaps even the markets in general.

At current levels, the BSE Mid-Cap trades at a 16.6% discount to the BSE-100 and the BSE Small-Cap trades at a 23.5% discount. Back in January 2008, when the markets had peaked, the two indices traded at a discount of 6% and 22%, respectively. While mid-cap valuations are better off in comparison, those of small-caps are getting into a dangerous zone last seen during the January 2008 peak.

While there certainly may be small- and mid-cap firms that still offer value, investors need to be beware both of penny stocks and entering into the market at such high valuations.

Why small investors should avoid small cap stocks

There are several reasons why small cap stocks should not be considered for investment by any investor - new or old, small or large. Before I start to argue my case, let me define what is a small cap stock.

The market capitalisation (or market 'cap') of a stock is the product of a stock's current market price and its equity capital. In other words, a stock having an equity capital of Rs 10 Million (1 Crore) and a price of Rs 100 has a market cap of Rs 1 Billion (100 Crore).

The question is: What market cap makes a company a small cap, or a mid cap or a large cap? The short answer is: It depends on whom you ask. There are no precise definitions. The industry norm for a small cap company seems to be a market cap of upto Rs 2500 Crore!

A mid cap company has market cap ranging from Rs 1000 Crore to Rs 13000 Crore. Large caps are those forming part of the Sensex 30 and Nifty 50 stocks. As you can see, the whole thing is pretty confusing.

Small investors get attracted to small caps because of two main reasons - 'affordability' and greed. Most small companies are also small cap companies that trade typically at few tens of Rupees. This price is attractive to small investors with small capital. (Many don't realise that a Rs 30 stock may have a Re 1 face value and may be trading at a P/E of 30.)

Many of today's large caps were small caps 10 or 12 years back. The general assumption is that all small caps have the potential to become large caps and give multibagger returns. But only a small minority out of the thousands traded in the stock market actually make the transition. Most will remain small caps, or disappear into the sunset.

Why are small cap stocks so risky that they are best avoided by small investors?

• lack of transparency of management
• lack of adequate research by fund houses and brokers
• lack of financial muscle
• low liquidity
• high volatility

Management is too busy trying to survive (or siphon off money) to look after investor relations and proper communication of plans. Fund houses shun such stocks, so analysts don't cover them or visit their factories to ask tough questions.

One or two bad quarters can wipe out a small company, who may not have access to big money. Low volume of trading leads to difficulty in getting in or out, and wild price swings if small quantities are traded.

Only those investors with adequate experience and knowledge of fundamental and technical analysis should attempt investing in small cap stocks. That too, with the awareness that the entire investment can go down the drain. Preferably, the investment in small cap stocks should be limited to 10% of total portfolio value, to mitigate the risks involved.

The vast majority of investors should look for more expensive but less risky large cap stocks, or stick to index funds or index ETFs. Always remember Warren Buffet's investment rule: Don't lose money.

Best Multibagger midcaps & small caps in Indian stock market

A comprehensive list of mid cap stocks ( including some of the small caps too) which can be future maultibaggers. The present stock prices are more or less near the market price. The list was prepared some time back so mentioned stock procemay not match with current market price in BSE/NSE. I am a firm believer that Midcaps with good management and fundamentally strong Balance Sheet give maximum return over a longer period of time.

1. 3i Infotech 95.50 (Ex Bonus)
2. ABC India 47.75
3. Adlabs 340.65
4. Aftek Infosys 115.65
5. Agro Tech Foods 125.10
6. Alps Industries 82.00 (Ex Bonus)
7. Amara Raja Batteries 193.00
8. Asahi India 120.00
9. Ashapura Minechem 220.00
10. Aztec Software 185.20
11. Balaji Amines 113.65 (Ex Bonus)
12. Batliboi 104.70
13. Bilcare 640.05
14. Biocon 493.75
15. Blow Plast 120.00
16. Centurion Bank 21.55
17. Clutch Auto 125.00
18. Crest Animation 141.10
19. Crew B.O.S. 172.30
20. Deep Industries 30.00
21. Elder Pharma 262.80
22. Emami 127.25
23. Encore Software 30.15
24. FCI OEN Connectors 407.55
25. Flex Industries 101.90
26. Gateway Distripark 220.75 (Ex Bonus)
27. Genus Overseas 156.85
28. GHCL 140.00
29. Greenply 94.75
30. Hind Org Chemicals 40.85
31. Hind Sanitary 105.00
32. Hitachi Home 87.00
33. Honeywell Automation 1,088.45
34. Hyderabad Industries 260.00
35. India Infoline 162.00
36. Infomedia India 178.55
37. International Combustion 335.00
38. ITC Ltd. 142.00
39. IVRCL Infra 146.80 (Ex Split)
40. Jagran Prakashan 210.80 (Ex Bonus)
41. Jain Irrigation 243.00
42. Jindal Stainless 97.40
43. JK Paper 62.00
44. Jyoti Structures 67.15 (Ex Split)
45. Kajaria Ceramics 45.70
46. Madhucon Projects 300.00
47. Magma Leasing 165.00
48. Man Industries 192.00
49. Medicaps 92.00
50. Mirc Electronics 21.90
51. Navneet Publication 58.00
52. Orchid Chemicals 210.00
53. ORG Informatics 172.55
54. Pantaloon Retail 299.35 (Ex Right & Ex Split)
55. Patel Engineering 347.95
56. Pokarna Ltd. 166.75
57. PSL Limited 277.85
58. Punj Lloyd 1,050.00
59. R S Software 116.45
60. Rajshree Sugar 140.00
61. Ramco Industries 1,400.00
62. Ramco Systems 317.25
63. Ranbaxy Labs 362.35
64. Ratnamani Metal 270.60
65. Raymond 403.95
66. Reliance Infra 293.80
67. Sangam India 67.10
68. Saregama India 226.60
69. Savita Chemicals 226.80 (Ex Bonus)
70. Shashun Chemicals 84.35
71. Shipping Corp. 162.85
72. Simplex Infrastructure 300.20 (Ex Split)
73. South East Asia Marine 175.00
74. SPEL Semiconductor 21.05
75. Spicejet 82.45
76. SREI Infrastructure Finance Ltd. 63.25
77. Sterling Holiday 70.52
78. Suashish Diamonds 104.60
79. Surya Pharma 140.65
80. Surya Roshni 64.15
81. Suven Life Sciences 19.75 (Ex Split & Ex Bonus)
82. Tata Steel 380.30
83. Transport Corporation of India 55.80 (Ex Split)
84. TTK Prestige 127.45
85. TV 18 389.30 (You also got Network 18 after my Recommendation.. keep it)
86. UB Holdings 262.40 (Ex Bonus)
87. United Spirits 496.75 (You also got McDowell Holdings after my Recommendation.. keep it)
88. Usha International 290.55
89. Vadilal Industries 27.00
90. Viceroy Hotels 112.00
91. Wockhardt 445.00
92. WS Industries 60.10
93. Yes Bank 68.55
94. Zicom 145.00
95. Zodiac Clothing 294.95

Besides, these some more good stocks are Jupiter Biosciences, SKF India, Gillete, NRB Bearings, NIIT Tech, Macmillan, Hikal Ltd., JK Cement, Reliance Energy, Tata Tea, Voltas, Hotel Leela, Aditya Birla Nuvo and India Cements. These stocks can also be considered as good investment picks. All the visitors should do their homework thoroughly before buying any stock and if you feel comfortable then buy it. Everybody knows that a correction is eminent, but when it will happen, nobody knows. Stocks mentioned above are good companies in good businesses with good fundamentals.

Smaller companies end up paying higher taxes

State-owned companies have higher effective tax rates than private firms.

The effective tax rate for companies, while much lower than the statutory tax rate of 33.99%, has been slowly going up in recent years. In 2005-06, the effective tax rate for a sample of 301,736 companies was 19.26%, according to the Budget documents. In 2006-07, for a sample of 328,061 firms the rate was 20.6% in 2007-08, a sample of 410,451 companies showed an effective tax rate of 22.24%.

Of course, the overall number conceals wide divergences in rates among companies. In 2007-08, for example, while the average effective tax rate was 22.24%, 16.4% of the companies in the sample, which accounted for 44.6% of total profits, had an effective tax rate of 0-20%. At the other extreme, 10.7% of the companies, accounting for 14.3% of total profits, had an effective tax rate of above 33.99%.

Bigger firms have a lower tax rate as they are able to avail of the loopholes more easily. In 2007-08, for instance, companies that had profits before tax of less than Rs1 crore, which accounted for the majority of companies, had an effective tax rate of 24.04%.

By contrast, firms with profits before tax between Rs50 crore and Rs100 crore had an effective tax rate of 20.14%. The largest companies with profits before tax in excess of Rs500 crore had an effective tax rate of 21.85%. But while the rate of the smallest firms has come down marginally, that for the larger companies has increased between 2005-06 and 2007-08.

State-owned companies have higher effective tax rates than private firms. For the former, the effective tax rate went up from 23.35% in 2006-07 to 25.69% in 2007-08.

For private companies, the rate was 21.28% in 2007-08, compared with 19.5% in 2006-07. While services companies have a lower overall effective tax rate than for manufacturing companies, effective tax rates increased for both in 2007-08.

The Budget documents also show the effective tax rates in various industries. In 2007-08, these ranged from a low of 3% for sugar manufacturers to a high of 40% for legal professionals. For IT-enabled services and business process outsourcers, the rate was 15%, while it was 12% for software developers. Property developers had an effective tax rate of 18%. Most of the manufacturing industries had tax rates between 16% (power and energy, tea and coffee, textiles) and 31% (printing and publishing).

Small-cap stocks: Outperformers then, underperformers now

In the rally after elections, small-cap stocks were in news for outperforming the broader market. Yet again they are in news – this time for underperformance.

The BSE Small-Cap index managed nearly twice the Sensex gains in the period from May 15 (the day just prior to election results) to June 4, the recent high for this index at 6,525.

The index was up 52 per cent over this period and in fact peaked out before the Sensex did.

The Sensex touched its recent high on June 10.

Top movers in the small-cap basket post-election were mainly the stocks of realty players such as Sobha Developers (up 122 per cent), Marg (up 116 per cent), Unity Infra Projects (up 110 per cent) and Kolte Patil Developers (up 105 per cent).

Mid-caps

In the mid-cap space too, the ones that led from the front were the infrastructure and realty players – Gammon Infra Projects, Simplex Infrastructure and Puravankara Projects.

However, the BSE Small-Cap index has also been quick to correct in the post-Budget meltdown.

In the four sessions after the Budget, the index has lost 18 per cent, plunging much more than the Sensex, which has declined 11 per cent.

While the index stocks have undoubtedly seen “basket selling”, it is not clear why small-caps have followed suit, as retail investors have indulged in sporadic buying in recent trading sessions. The stocks that have fallen the most this week are not the top gainers after the elections, though these counters weren’t spared of deep cuts.

Losers

From their prices on June 4, Sobha Developers has lost 19 per cent, MARG is down 28 per cent, Kolte Patil Developers is down 41 per cent, Gammon Infra Projects shed 12 per cent, Simple Infrastructure lost 14 per cent and Puravankara Projects discarded 37 per cent.

Small is beautiful… but can be risky too

Small- and mid-cap stocks, believed to be multi-baggers in the making, come bundled with higher risks.

S. Hamsini Amritha

Be it the world of cars or the stock market, “small” appears to be in vogue. In the equity rally that began early March this year, stocks in the mid- and small-cap space have delivered returns that trounce those of their large-cap competitors.

Wondering what makes these stocks so attractive? Well, it is their high-risk and high-return positioning that charms the most, though their low valuation also appeals to certain investors. Read on to understand why small- and mid-cap stocks, believed to be multi-baggers in the making, come bundled with higher risks.

Market capitalisation, an indicator of the value placed on a company by the market at that day’s price, is a product of its market price and outstanding number of shares.

While there’s no clear-cut demarcation to differentiate the stocks based on their market capitalisation, given the dynamism of the equity markets, it can be assumed that stocks with market cap less than Rs 2,000 crore fall in the small-cap category, while those above Rs 7,500 crore are of the large-cap genre. The ones that fall in the middle zone are the mid-caps.

Large caps – few surprises

Large-cap stocks enjoy a large scale of operations; have established business model and hence have lower uncertainty in business. Besides, analysts, fund managers and investors alike, closely monitor these stocks. So, while the risks associated with investing in large-cap stocks are known, their likely returns aren’t unknown either.

This makes large-cap investing safer and more suitable for investors who have little stomach to relish uncertainties in investing. This is also why large-cap stocks are most sought after during periods of uncertainty in the markets. But on the other hand, investing in small and mid-cap stocks comes with higher risks, given their lower scales of operation.

While some of the companies in this cadre are still far from establishing their businesses, others are relatively new in their sector — which makes predicting their future revenues tougher. But it is precisely this heightened business risk that sweetens their return potential significantly.

History has it that multi-baggers in most equity rallies are, more often than not, stocks from the mid- and small-cap category only. It is then no surprise that the current rally too saw the small- and mid-cap stocks return higher.

When benchmarked on their year-to-date returns, the mid- and small cap stocks have scored a stellar 80 per cent and 85 per cent returns, while the BSE Sensex gained by 60 per cent.

High risk, high return

The desire to invest in smaller companies comes, from their ability to return higher. Sidelined by analysts and investors and weighed down by the higher degree of earnings risk, these stocks do not command the valuations that larger companies usually do in the stock markets.

For instance, while a large diversified company such as L&T commands a consolidated valuation of about 25 times currently, smaller ones such as McNally Bharat or Shriram EPC, which are in similar lines of business, enjoy a lower value. Why? While L&T has a wider business presence, large clientele and stable earnings outlook, the smaller ones compare less favourably with it on almost all these counts.

However, with the economy beginning to revive and credit availability easing up, investing in smaller companies may hold higher returns potential, with the advantage of a low base.

Not only do these companies hold the potential to grow at a higher pace; their earnings growth cannot also be easily replicated by their large cap peers either.

For instance, while net profits of Yes Bank have grown at a compounded rate of 53 per cent over the last three years, that of ICICI Bank has grown at about 10 per cent only.

It is this ability to scale high earnings growth that fuelled the recent rally in the mid- and small-cap space, once it became clear that the economy was beginning to get back into shape. For instance, between the cement major ACC and its smaller peers Dalmia Cements and Shree Cements, the stock performance of the latter two was way better in the run-up since January. While ACC delivered 68 per cent returns, the other two stocks registered 82 per cent and 131 per cent returns, respectively.

The trend was similar among stocks in other sectors such as FMCG and IT too. Infosys’ 38 per cent return since January appeared trifle when compared with the triple-digit gains recorded by mid-caps MindTree (117 per cent) and Hexaware (149 per cent).

Earnings trap

But if investing in small- and mid-cap stocks appears exciting, don’t turn a blind eye towards their earnings. While it is natural to get carried away by the seemingly low valuations, remember that they do so for a reason.

If the probability of these stocks to more than double their earnings is high, the probability of their non-performance is also equally high. Since their businesses are at a nascent stage, their earnings are highly vulnerable to a downturn. In 2008, a year mired with recessionary trends, the BSE Sensex declined by 53 per cent. But the mid-cap and the small-cap indices declined more, by over 67 per cent and 72 per cent, respectively.

This may explain why ACC trades at 13 times, while Dalmia Cements or Shree Cements trades lower at eight times and seven times. Here again, while the mid-caps are somewhat better off, it is their still smaller peers that become unpredictable during uncertain times.

Besides earnings risk, investing in small-cap stocks also bundles with it liquidity risk and higher impact costs. And since most small stocks sport a high promoter holding, the promoters’ credibility also becomes pivotal in determining the fate of your investments.

11 small, mid-cap stocks worth buying

With the Sensex recovering substantial ground from the lows it hit in March 2009, small and mid-caps are back in the news again. So much so that they seem to have become the flavour of the season, with every second market expert giving the green signal for buying them. "Apart from investing in large-caps, investors can consider investing in mid-caps at the current juncture as there continues to remain value in this segment of the market owing to the drubbing that the mid-cap stocks witnessed in 2008," says Angel Broking in its latest report on 'mid-caps'.

Also because despite their recent outperformance vis-a-vis the large-caps, some fundamentally sound companies are available at investable valuations. And considering that there is limited value at the current juncture in large-caps, "we believe that mid-caps will take the baton in their hand as they have the potential to outperform going forward as concerns with respect to the segment would continue to get allayed with the passage of time," says the report.

Angel Broking, therefore, has selected 11 stocks from the small and mid-cap space representing different sectors such as auto-ancillary, tyre, hotels, IT, consumer durable, construction, packaging, logistics, pharma, cement and oil & gas. According to it, these companies are either expected to report improved financial performance over the next few years on the back of the economic recovery and/or are available at very attractive valuations, which warrant them as value buys.

Here they go:

Amtek Group

The Amtek Group is India's leading auto components player in the forgings and castings space. The group has been aggressively pursuing an inorganic growth strategy and has also been rapidly scaling up capacity.

It has a track record of successfully exploiting synergies from its acquisitions and such integration benefits are likely to go up further.

Amtek Auto (AAL) has announced to merge Amtek India (AIL) and Ahmednagar Forging (AFL) with Amtek Auto by December 2009 or January 2010.

Considering the swap ratios, AIL and AFL are trading at 43% and 27% discount at Rs 44 and Rs 64. This provides an opportunity to enter Amtek Auto through AIL and AFL with a significant discount to its current market price.

Apollo Tyres

Apollo Tyres (ATL), India's premier tyre company, is set to witness a turnaround in its fortunes post the decline in the global commodity prices. It is estimated to post 6.7% and 31.7% CAGR in revenues and earnings over FY2009-11E, respectively.

This is despite the slowdown in industrial activity, which will result in declining demand for tyres from the OEMs in the short term.

In the last nine years, the company did not lose any volumes even though there was a severe downturn in the commercial vehicles (CV) Segment in FY2001.

Over the years, ATL's average growth in volumes has been in the range of 16%. On the valuation front, the company has always traded at around 8x one-year forward P/E multiple. At the Rs 29, the stock is trading at 6.1x FY2011E EPS and 0.8xFY2011E P/BV, which is attractive.

Asian Hotels

The worst seems to be over for the hotel sector and the operating environment is set to improve post 2HFY 2010.

In case of Asian Hotels (AHL), given its sharp underperformance vis-a-vis peers, despite better earnings visibility, potential value unlocking through demerger and cheap valuations, we believe the company is an attractive play for investors to play out the consumer story.

At the CMP of Rs 301, AHL trades at attractive valuations of 6.2x FY2011E earnings.

Bartronics India

Bartronics India (BIL) enjoys a pre-eminent position in the Indian AIDC segment and has also grown this business globally in countries like Malaysia and the US.

The company is also the only smart cards manufacturer in India and this segment is expected to surge on demand from the telecom, banking and government sectors.

The company through bagging the Rs 5,000-cr ‘Aapke Dwar’ order has also opened up a new avenue for growth in e-governance.

BIL is expected to record CAGRs of 39.6% and 34.7% in top-line and bottom-line, respectively over FY2009-11E. At the CMP, the stock trades at 3.2x FY2011E EPS. Angel Broking recommends a Buy on the stock with a Target Price of Rs 235.

Blue Star

Blue Star (BSL), India's largest central air-conditioning company, is on course to scale greater heights riding on favourable industry scenario, superior project execution skills and its preferred status among institutional buyers.

BSL continues to be a major beneficiary of the strong growth momentum across various verticals, such as, SEZs and cold chain infrastructure amidst slackness in demand from the IT/ITES and retail sectors.Angel Broking believes that BSL's leadership position, noticeable high-growth prospects and first-mover initiatives in the emerging cold storage space will aid its growth going ahead.

It also expects BSL to post a strong 22.1% and 16.8% CAGR in revenues and earnings over FY2009-11E. At Rs299, the stock is trading at compelling valuations of 10.9x FY2011E EPS and 4.2x FY2011E P/BV.

Consolidated Construction Consortium

Consolidated Construction Consortium (CCCL) is a leading sub-contractor providing turn-key solutions in the Infrastructure, industrial, commercial and residential sectors. The company's margins may improve amidst cooling commodity prices.

Further, on the valuation front, CCCL is trading at a substantial discount to its peers, which is unjustified given its superior return ratios, de-leveraged balance sheet, strong order book, earnings CAGR of 30% and no equity commitment over the next few years.

Essel Propack

Essel Propack (EPP), the world's largest packaging company, is part of the Essel Group. The company is expected to register an improvement in its performance on the back of low crude oil prices and stabilisation of new units.

The company may post 13.5% CAGR in sales over the next two years and record consolidated profits of Rs 44.4cr in CY2010, as against the loss of Rs 88.3cr in CY2008. At the CMP, the stock is trading at inexpensive valuations of 0.6x P/BV and 0.3x EV/Sales on CY2010 estimates. Angel Broking initiates Coverage on the stock, with a Buy recommendation and a Target Price of Rs 37.

Gateway Distripark

Gateway Distriparks (GDL) is an integrated port-based logistics player with a presence in the rail container and cold chain distribution businesses.

GDL's presence at strategic locations and its ongoing expansion plans may make it a key beneficiary of the growing container traffic in India going ahead.

At Rs 88, the stock is trading at 8.9x FY2011E EPS of Rs 9.9 and 5.4x EV/EBIDTA of FY2011E. The stock is trading at attractive valuations on the back of our estimated Earnings CAGR of 15% over FY2009-11E

Ipca Labs

Ipca Laboratories (Ipca), a vertically-integrated company with a geographically diversified business model, has grown at steady pace in the past posting a CAGR of 15.7% and 24.1% in net sales and net profit during FY2005-08 primarily driven by its domestic formulations segment.

Going forward, the next leg of growth for the company is expected to come from the export segment as it leverages its API capabilities to create a sturdy business in the regulated and emerging formulations markets. Angel Broking estimates Ipca's net sales to post a CAGR of 16.9% and adjusted net profit to register a CAGR of 29.4% over FY2009-11E.

JK Lakshmi Cement

JK Lakshi Cement, a JK Group company, is an established cement player in north India. The company is increasing its cement as well captive power capacity. Cost savings on account of the decline in input costs, additional captive power and strategic tie up to source power would help the company maintain its margins amidst downturn. At Rs100, JKL is trading at an EV/tonne of US $47/tonne on FY2011 capacity, which seems to be attractive.

Shiv Vani Oil

Shiv Vani Oil & Gas Exploration Services (SOGES) is an integrated oil servicing company focused on onshore drilling and seismic surveying. It is the visible play on the huge upcoming investments in the Indian E&P segment. We expect SOGES to record a CAGR of 32.8% and 29.1% in top-line and bottom-line respectively, over FY2009-11E. At the CMP, the stock is trading at 5.1x FY2011E EPS. Angel Broking initiates Coverage on the stock, with a Buy recommendation and a Target Price of Rs 406.