Top 5 Micro-Cap Companies in India

12 Nov 2021  Read 1845 Views

Everyone loves a good underdog story; the humble beginnings, the struggle, and eventual success. If it's something we've learned from years of very cheesy movies is that you should never judge a book by its cover because you never know if the little guy might be carrying some big guns.

When it comes to the stock market, a microcap company would be something of the aforementioned "little guy"; however, a small market cap doesn't necessarily mean poor prospects because if you start big, you have to stay big, but if you start small, you have room to grow and amaze, and microcap companies are known to have notoriously lucrative growth prospects.

Today we take a look at these companies and our pick of the top 5 microcap stocks that are worth taking a look at for investing.

What are Microcap Companies?

 Microcap companies are companies that have a market capitalization of 50-500 crores in the stock market. They are usually freshly listed, and they have the potential to grow.

So, you must have noticed that these companies have the lowest market capitalization, and market capitalization is nothing but the product of the company's share price and the number of shares outstanding. 

 The Nifty Microcap 250 Index was created by NSE Indices to measure the performance of microcap stocks that are listed or authorized to trade on the NSE. Beyond the Nifty 500 index components, the index includes the top 250 businesses, which are chosen based on their average market capitalization.  

 You always have reasons to put your money in equity. We'll provide you with some here.

Reason to Invest in Microcap stocks.

One should invest in microcap stocks to earn higher returns considering their commendable performance in the last 2 years. These stocks are usually in the beginning stages of their life cycle, and they have huge potential to grow. And they provide huge room for growth and better performance compared to the large-cap stocks, which usually have reached the maturity phase of their life cycle.

There is always a checklist to tick off before putting money into any stock. Here are some things that should be considered for the same.

Things to consider before investing in Microcap stocks 

Before investing in these stocks, one needs to consider that the risk is quite high compared to the large-cap stocks as they have become mature and can provide consistent returns. This is not the case with microcap companies, as their business model is not foolproof. And they take time to generate sources of finances to grow. 

 The quantity of research on small-cap businesses is generally restricted due to the under-coverage of micro-cap equities. But worry not, we are here to help you out selecting and investing in the top 5 micro-cap companies available in the stock market of India. 

 To choose your rising stars, check out stock bundles at Ticker, which will help you provide a list of stocks in microcap companies under the Rising Stars bundle.

 Here is a bundle strategy to help you find microcap stocks that are performing better than the others. For shortlisting stocks for you, we have considered factors like Market Capitalization, CAGR of sales growth, ROE, ROCE, Net Profit, Profitability, Debt to equity ratio.
 

 Source: Ticker

This bundle will provide you with microcap stocks that have good fundamentals and better future performance. It is expected that these stocks have the potential to get converted into small or mid-cap stocks in Dalal street. The screen filters out companies that have a market capitalization in the range of 50 to 500 Cr. It also considers decent return ratios averages and growth ratios of greater than 15%.

Let's just quickly jump into the five stocks that you have been waiting to read about.

 Top 5 Picks from Micro-cap companies in India

 We have tried to pick stocks from different sectors to take the benefit of diversification as well. Let's dive in to know more about each of the companies. 

 Alufluoride Ltd.

This company comes under the chemical sector. It is situated in Andhra Pradesh and is a leading manufacturer of Aluminum Fluoride in the country. The company also has a good reputation in the overseas market along with domestic influence. 
Aluminum Fluoride is mainly used in the production of Aluminum as a flux in welding applications and in ceramic glazes and enamels. For the supply of raw materials, The Company signed a long-term acid supply contract with Coromandel International Ltd. Below you can take a look at the 5-year returns of the stock.

 DHP India Ltd. 

This is the stock of the industrial equipment-engineering segment. The company produces items like LPG Regulators and their accessories along with the related brass items. This company also has a strong international presence. Around 86% of its revenue is derived from export sales only. Its major sales contributor is LPG regulators contributing 72% of the total revenue while the remaining comes from the brass items. And the company is constantly expanding its operations to meet the increased demand. The company is increasing its manufacturing capacity in order to become a major exporter of the product. So, take a look at the price chart.
 

 Apollo Finvest (India) Ltd. 

 This company is involved in the financing and investment business. It is continuously decreasing the debt on its balance sheet. The company is profitable, but it is not paying any dividends to its shareholders. It helps fintech companies to provide fully digital and compliant loans to their customers. It combines a platform engineered like a startup with the regulatory expertise of a fully licensed NBFC so that the clients can truly focus on their core business. 

Apollo has expanded through a range of digital lending products over the last three years, working with more than 50 fintech companies. Also, if we see the chart below the company has provided a CAGR return of 93% over 5 years.

 Frontier Springs Ltd. 

This company deals in the manufacturing of steel and iron products. It primarily manufactures L.B.Springs and Hot Coiled Compression Springs and forging items for Wagon, Locomotives, and Carriage, and supplies railways, bogie manufacturers, and Chittaranjan Locomotive Works on a regular basis. 

With a total installed capacity of 7400 metric tons per annum, the company operates two facilities in Kanpur (Uttar Pradesh) and Paonta Sahib (Himachal Pradesh). Bombardier Inc. also gave its permission to Frontier Springs for the delivery of coil springs for Metro Coaches. By looking at the chart below we can see that the share price has grown over the years.

 Tyche Industries Ltd. 

 It is the stock of the pharmaceutical and drugs industry. The company manufactures active pharmaceutical ingredients (API) and intermediates. Racecadotril, Silodosin, Solifenacin Succinate, Tenofovir Disoproxil Fumarate, and Tenofovir Disoproxil Fumarate are some of the active pharmaceutical components. The business produces bulk drug intermediates. It also offers nutraceuticals and chiral intermediates, contract drug substances, analytical development, and contract manufacturing services.
The company's products are exported mainly to the United States and Europe. 

Its manufacturing plant is situated in East Godavari District, Andhra Pradesh. The company's products also have a presence in the global market. It is continuously investing in R&D to commit itself to Quality, Safety, and Environmental regulations. Tyche Industries Limited (TIL) is a leading producer of glucosamine hydrochloride and associated sodium and potassium salts in India. Take a look at its price chart.

 Conclusion

These are our picks at companies that could turn out to be "chhota packet bada dhamaka." With potential risks involved due to lack of maturity, no better time comes to mind to retell the cliche phrase, "no risk, no reward."  So what do you think? Would you give the potential small wonders a chance, or are you more of a big-league kinda investor? Let us know in the comments section below and share with a friend to spread the word. Every journey begins with a single small step; these companies have taken theirs, are you ready to take yours?


*Disclaimer: The stock discussed above aren't recommendations from Finology, they are only picked to make you understand the concept.

About the Author: Kanishka Tayal | 18 Post(s)

Kanishka is a finance enthusiast, currently pursuing her master's in Banking and financial services domain. She loves to doodle in her spare time. She is a keen learner and is willing to pursue her career as a financial analyst.

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