Sure, retail investors should stick to large-cap stocks. However, there are some smaller stocks which have been performing well, at least in-line with the benchmark indices.
Take for instance, Jubilant Foodworks. This stock was listed in February last year and has returned a whopping 177 per cent in the last one year, 33 per cent in the past six months. The Bombay Stock Exchange's (BSE) Sensitive Index or Sensex has returned seven per cent in one year and a negative seven per cent in the past six months. Returns from Nifty are similar. Jubilant Foodworks’ current market price (CMP) is Rs 782.40 against the public issue of Rs 145 and the listing price of Rs 161.
Though a public sector behemoth, Coal India has given back 21 per cent returns (in six months), more than the benchmark indices. This stock's current market price stands at Rs 395.70 against an issue price of Rs 245 and listing price of Rs 291.
Talwalkars Fitness, Career Point and VA Tech Wabag have returned negative six per cent, negative 10 per cent and negative 14 per cent, respectively, (six months), like the Sensex. SKS Microfinance has given negative 50 per cent returns in the last six months.
Talwalkars Fitness, Career Point and Lovable Lingerie, saw their initial public offering (IPO), subscribed 8, 30 and 21 times, respectively, on the retail side. VMS Industries was subscribed four times and listed 10 per cent above the issue price of Rs 40 today.
Does this indicate less choice for the investors as most of these don't have listed peers or have good fundamentals?
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Sudip Bandyopadhyay, MD & CEO, Destimoney Securities, goes with the latter. “Most of these are consumption-based sectors, which have a long term growth story. For instance, education companies have given very good returns in the past four to five years. This will continue,” he says.The education sector returned almost 239 per cent in the last five years and 41 per cent in three years.
Secondly, smaller IPOs have been seeing a lot of retail participation because of reasonable pricing. “Talwalkars' IPO was on the aggressive side. Otherwise, most of these were very reasonable,” adds Bandyopadhyay.
Not having a listed peer means the stock cannot be benchmarked against anything. So, until there is some issue on the fundamental or management side - SKS Microfinance is an example – most of these stocks become good buys as these can scale up, says Prashant Prabhakaran, head - retail broking, IIFL.
Career Point, for example, gives coaching to students and in India's case, this model cannot go wrong. Similarly, Jubilant Foodworks is yet to reach Tier-II and Tier-III towns.
From the valuations perspective, experts say, companies like Career Point and Lovable Lingerie are adequately valued, with a market price of Rs 330.65 and Rs 391.05, respectively.
However, these cannot be the dominant theme in your portfolio. But, these can be used as diversifiers. “Such stocks provide a different opportunity to investors which is not available elsewhere. Invest that part of your portfolio which is targeted towards high growth and thus you can take high risk,” says Arnav Pandya, a certified financial planner. Small investors who are not conversant with the markets should avoid this space. They should stick to the tried and tested scrips with strong fundamentals.