Similar to Nifty 50 the NSE’s large-cap index, we also have an index dedicated to small-cap stocks called the Nifty Smallcap 50 Index. The small-cap niche is one of the most exciting especially when it comes to making the big bucks. In this article, we cover the top stocks in the nifty smallcap 50 index, its computation and five stocks that are the best investment bets from the nifty smallcap 50 index. Keep Reading to find out!
What is Nifty SmallCap 50 Index and How is it Computed?
The primary objective of the NIFTY Smallcap 50 Index is to capture the movement of the smallcap segment of the market. Nifty smallcap 50 index represents the top 50 companies. NIFTY SmallCap 50 Index can be used for a variety of purposes such as benchmarking fund portfolios, launching of index funds, ETFs and structured products.
The above table shows the list of the top stocks with the highest weightage in the Nifty smallcap 50 index. The top 10 stocks have a combined weightage of around 40%.
These stocks included are selected based on average daily turnover from the top 100 companies selected based on full market capitalization in NIFTY Smallcap 250 index. NIFTY Smallcap 50 Index is computed using the free-float market capitalization method. Here the level of the index reflects the total free-float market value of all the stocks in the index relative to a particular base market capitalization value. This index is rebalanced on a semi-annual basis
We can clearly infer from the chart above us that the Nifty Smallcap 50 index has jumped 5x times since 2006 and almost 2.5x since the augment of covid.
Financial Services and IT stocks make up about 50% of the weightage of the Nifty smallcap 50 index. Similarly the top 10 companies in the index also roughly make about 40% of the index weightage. The Nifty Smallcap 50 index has a Price Earning Ratio of 33.17. The price to book value is 3.6 times and the dividend yield is almost 1%.
QUICK READ – List of Nifty 50 Stocks by Weight
Top Stocks in the Nifty SmallCap 50 Index
There are 50 stocks in the Nifty smallcap 50 index. We have shortlisted around 5 stocks based on certain filters and parameters, which we think are best suited and top stocks for investment.
We will discuss each of those stocks in detail.
1. Avanti Feeds
Avanti Feeds is a leading provider of high-quality shrimp feed, the best technical support to the farmer and caters to the quality standards of global shrimp customers. The company is the largest producer of shrimp feed in India with a market share of 45% in the domestic feed business.
It sold 485,000 Tonnes of shrimp feed in FY20 which translates to 81% capacity utilization. The company derives 78% of revenue through the Shrimp Feed business and the remaining revenues through shrimp processing operations.
The company has been one of the biggest multi-baggers of the decade in the Indian Stock Exchange, giving 90X returns over 4 years from 2013 to 2017. The company is still growing sales at an average of 30%year on year in CAGR terms with a compounded profit growth ( CAGR) being 57% in the past 10 years.
The company is a debt-free company and a market leader in its product. The business has a high ROE which makes the business an excellent investment opportunity. Avanti Feeds is still currently trading at an attractive valuation at 22.8 times its earnings with a market capitalization of 7500 crores.
The company is a good bet in the marine & aquatic sector in India which is still in the nascent stage as compared to other countries.
2. CESC Limited
CESC (Calcutta Energy Supply Corporation) Limited is the flagship company of the RP-Sanjiv Goenka Group. It is engaged in electricity distribution with an embedded generation facility, across 567 square kilometres of its licensed area in West Bengal.
The company also has a power distribution business spread across Noida, Rajasthan & Maharashtra. Additionally, it is also involved in a power generating business in Kolkata. The company has given sales growth and profit growth of 8% and 17% in CAGR terms over the past 10 years respectively.
A cheap price to book ratio of 1.2 times with a dividend payout ratio of 28.59% with consistent earnings( electricity distribution business of the company being the cash cow) makes it a worthy investment.
A dividend yield of 5% with a decent ROE of 12-14% additionally makes the company an attractive investment choice in the power sector in India.
CDSL is one of the two approved depository institutions in the Indian Capital Market.CDSL operates as a financial securities depository in India. It is responsible for holding securities (such as shares, debentures, and mutual funds) in electronic form and facilitating securities transactions.
CDSL follows an asset-light business model with minimal fixed cost requirements. Due to this, CDSL enjoys a significant level of operating leverage and an excellent operating margin of 62%. Thus, any increase in revenue will directly expand net profit and ROE.
Annual Maintenance charges and transaction charges contribute to around 50% of the revenue of CDSL. IPO & KYC services contribute to almost 30% and the rest through remaining sources. The company is debt-free and a monopoly makes it a very good bet in the Fintech space. The company in its recent FY21 September quarterly results have doubled its profits QOQ.
A high-profit growth rate and a healthy dividend payout ratio make this expensively valued stock a strong contender for investment.
Welspun India Limited, part of the US$ 2.7 billion Welspun Group, is one of the largest home textile manufacturers in the world. The Company offers a wide spectrum of Home & Technical textile products and Flooring solutions.
It manufactures a wide range of home textile products ranging from towels, bathrobes to sheets, top and basic & fashion bedding.
WIL’s distribution network is spanning in more than 50 countries, making it the largest exporter of home textile products from India. WIL has been a regular supplier to leading retail chains over many years such as Walmart Stores, Costco, Kohls, Bed Bath & Beyond, Ikea, Macy’s, etc, which provides revenue stability to the company.
The company gets 84% revenues from its exports to the US & Europe, and the training from India and the rest of the world. The company has given excellent financial results for the two consecutive quarters June FY21 and September FY21. Welspun India has got its highest quarterly profits in these quarters.
Although the company has shown a low growth in sales in the last 2-3 years the company enjoys a high return on Equity since inception. The company’s stock price has jumped 8x since its low in March 2020. The company still trades at a PE of 20 and a market cap of 14,428 Crores.
All these factors make the company a good bet in the textile sector.
5. PVR Ltd
PVR Limited (PVR) is India’s largest and most premium film exhibition company. It pioneered the multiplex revolution in India by establishing the first multiplex cinema in 1997 in New Delhi and continues to lead the market with a relentless focus on innovation and operational excellence to democratise the big‑screen movie experience.
It currently operates a cinema network of 845 screens with over 1.8 Lakh seats, across 176 properties in 71 cities in India and Sri Lanka, delighting over 10 Crore Indians annually.
The company earns about 52% of its revenues from the sale of movie tickets. It also earns revenues from other activities like sale of food & beverages contributed 28% to its revenues, followed by advertisement income (11%), Convenience fees (5%) & distribution business (4%).
The company has been running on losses for the past 2 years due to covid wave & restrictions. Although the stock has recovered almost 70% from its low price the company is yet to return to profitability. The company has a market cap of 10,000 crores and has reported losses in the last 7 consecutive quarters.
However, the company’s ability to raise funds quite successfully during covid and it’s being the major dominant player & market leader in the movie theatre and multiplex industry in India makes it a strong bet in the entertainment industry in India.
With the opening up of the economy and India reporting its lowest Covid case count, PVR should perform well in the future with a list of movies lined up for release and audiences waiting to throng back to cinema halls.
List of all Companies in Nifty Smallcap 50 Index
|Aarti Drugs Ltd.||PHARMA|
|Alok Industries Ltd.||TEXTILES|
|Amber Enterprises India Ltd.||CONSUMER GOODS|
|Anupam Rasayan India Ltd.||CHEMICALS|
|Avanti Feeds Ltd.||CONSUMER GOODS|
|Bajaj Electricals Ltd||CONSUMER GOODS|
|Balaji Amines Ltd.||CHEMICALS|
|Bank of Maharashtra||FINANCIAL SERVICES|
|Birla Corporation Ltd.||CEMENT & CEMENT PRODUCTS|
|Can Fin Homes Ltd.||FINANCIAL SERVICES|
|Central Bank of India||FINANCIAL SERVICES|
|Central Depository Services (India) Ltd.||FINANCIAL SERVICES|
|Chambal Fertilizers & Chemicals Ltd.||FERTILISERS & PESTICIDES|
|Computer Age Management Services Ltd.||FINANCIAL SERVICES|
|Dilip Buildcon Ltd.||CONSTRUCTION|
|Firstsource Solutions Ltd.||IT|
|GMM Pfaudler Ltd.||INDUSTRIAL MANUFACTURING|
|Granules India Ltd.||PHARMA|
|Graphite India Ltd.||INDUSTRIAL MANUFACTURING|
|H.E.G. Ltd.||INDUSTRIAL MANUFACTURING|
|Happiest Minds Technologies Ltd.||IT|
|IDBI Bank Ltd.||FINANCIAL SERVICES|
|IDFC Ltd.||FINANCIAL SERVICES|
|Indiabulls Housing Finance Ltd.||FINANCIAL SERVICES|
|Indian Energy Exchange Ltd.||FINANCIAL SERVICES|
|Indian Overseas Bank||FINANCIAL SERVICES|
|Indigo Paints Ltd.||CONSUMER GOODS|
|Intellect Design Arena Ltd.||IT|
|J.B. Chemicals & Pharmaceuticals Ltd.||PHARMA|
|Jubilant Ingrevia Ltd.||CHEMICALS|
|Multi Commodity Exchange of India Ltd.||FINANCIAL SERVICES|
|NBCC (India) Ltd.||CONSTRUCTION|
|PNB Housing Finance Ltd.||FINANCIAL SERVICES|
|PVR Ltd.||MEDIA ENTERTAINMENT & PUBLICATION|
|Radico Khaitan Ltd||CONSUMER GOODS|
|Rail Vikas Nigam Ltd.||CONSTRUCTION|
|Rallis India Ltd.||FERTILISERS & PESTICIDES|
|Route Mobile Ltd.||IT|
|Sterlite Technologies Ltd.||TELECOM|
|Strides Pharma Science Ltd.||PHARMA|
|TV18 Broadcast Ltd.||MEDIA ENTERTAINMENT & PUBLICATION|
|UTI Asset Management Company Ltd.||FINANCIAL SERVICES|
|Welspun India Ltd.||TEXTILES|
|Zensar Technolgies Ltd.||IT|
In India, small-cap stocks have historically outperformed Large-cap stocks in the long run by 10-15% annually. This means if an investment is done right in a small-cap company we should double our money in a span of 2.5- 3 years.
Ideally, we should have at least 10-15% of our funds in good quality small-cap companies, however, we should ensure that we don’t invest more than 5% of our capital in any single small-cap company.
We have seen that small-cap companies like Relaxo and Avanti Feeds can give us 100x returns in the long run. It’s ultimately the small-cap companies that grow up to become large caps and future blue-chip companies.
Identifying them in an earlier stage and investing may be difficult but not impossible. The nifty smallcap 50 Index gives us an opportunity to identify the potential & spot the potential multi-baggers.
We hope you liked the article ” Top Stocks in the Nifty SmallCap 50 Index “. Comment down and let us know if you have invested in any of these companies. Happy Investing