TRUE OR FALSE: ONLY LARGE-CAP STOCKS CAN PROVIDE SIZEABLE & SECURE RETURNS

TRUE OR FALSE: ONLY LARGE-CAP STOCKS CAN PROVIDE SIZEABLE & SECURE RETURNS

We are a stock market advisory company and have been in this industry for the last 4 years. On a daily basis our executives speak with nearly 30 to 40 prospective clients. The most common discussion we have with them is our method of stock research and what type of stocks we recommend.

Majority of the investors who we speak with have this misconception that only Large-Cap stocks can provide sizable and secure returns and some of them request us to only recommend Large-Cap stocks. So, today we will take on this misconception about Large-Cap stocks and give you another perspective about stock picking.

Let us start by taking a quick view at the annual returns of BSE Sensex compared to BSE Mid-Cap and Small-Cap Index.

In the above table you can see very clearly that every year since 2012 the Mid-Cap and Small-Cap index have outperformed the BSE Sensex index.

Now, after showing you these figures, there will still be few investors with contradictory comments like:

1.  Small-Cap and Mid-Cap stocks are very risky, volatile and unpredictable.

2.  They have less volume being traded in them so it is difficult to make positions in them or exit from them.

3.  Because these companies are small and not in the focus of many Advisors or Analysts, it is not a good stock to invest in also because no one buys their shares.

There are many more reasons why investors shy away from Mid-Cap and Small-Cap stocks. To your surprise, we completely agree with you on all of these above points. Yes, there are many stocks from the Mid-Cap and Small-Cap universe which are extremely volatile and have unpredictable price movement, have a bad track record or have not been performing up to the mark. In most cases when an investor complains about the risk involved in these types of stocks, it is because he has burnt his hands already in such type of stocks and had decided then to not commit this mistake again.

The basic reason why these investors commit this mistake is because they decided to invest in “such” stocks based on someone’s recommendation, a close friend or a well known advisor from a News channel. Believe us, there are many stocks from Mid-Cap and Small-Cap universe that have great fundamentals, reputed track record and are trading at reasonable valuations.

Moving ahead, let us take a stock specific example- TCS from the Large-Cap universe and MindTree from BSE Mid-Cap Index(MindTree is also our Long-Term recommendation and has delivered 100% returns for our clients). Both of these stocks are from the IT Industry and have sound fundamentals.

We are confident that 5 years back you would have not even heard about a company called MindTree. It has great fundamentals, well qualified management and was trading at reasonable valuations. Now, looking at the returns from the above table, we are sure that given a chance to you 5 years back you would have invested in MindTree instead of TCS.

Adding to the stock price appreciation you would have received from MindTree, take a look at the dividend yield of the company. This is a perfect example of a Multibagger stock because along with stock price appreciation over the years, the company has also shared a big chunk of its profits in form of dividends with you.

On a concluding note, we would like to suggest that you should always prefer Mid-Cap and Small-Cap stocks for investments because they offer better ROI (Return on Investment) compared to Large-Cap stocks. To add to this, Large-Cap stocks are already big and developed companies where the upside is restricted, here as the Mid-Cap and Small-Cap stocks are growing companies they can become the next Large-Cap stock in the future.

So take some time out, do your own research or if you have shortage of free time, opt for a good, reputed stock advisory services and enjoy the fruits of investing in Mid-Cap and Small-Cap stocks!

Happy Investing