ANALYSIS OF STOCKS OF

SMALL COMPANIES

Amit V. Kanneshwar,
F2,SS 08 – 10,
IIPM Bangalore
 Small Companies
 Capitalization i.e. between $300 million to $2
billion.
 Smaller quoted companies (SQCs)
 The current approximate definitions are as
follows:
Mega Cap - Market cap of $200 billion and greater
Big Cap - $10 billion to $200 billion
Mid Cap - $2 billion to $10 billion
Small Cap - $300 million to $2 billion
Micro Cap - $50 million to $300 million
Nano Cap - Under $50 million

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 Pros & Cons (Small Cap)
 Huge growth potential
 Most mutual funds don't invest in them.
 They are often under-recognized.
 Thin Market
 Risk
 Sometimes, Small Cap Stock is Low priced for
a Reason.
 Time

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 Companies in Project. (Category S)
1. ARROW TEXTILES, MAHARASTARA (8.9)*
2. BIRLA POWER SOLUTION, DELHI (2.26)*
3. GTN INDUSTRIES, HYDRABAD (23.2)*
4. ZENITH BIRLA, MAHARASTARA (16.05)*
5.  PARAMOUNT COMMUNICATION (10.25)*
6. VINATI ORGANICS, MUMBAI (73.25)*
7. FORCE MOTORS, PUNE (465.1)*
8. ANSAL HOUSE AND CONSTR LTD (68.25)*
9. PANASONIC HOME AND APPLIANCE INDIA
(191.7)*
10. TRANSPEK INDUSTRIES, GUJARAT (119)*
* Price of a share.
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 Companies In project (Category A)

 CASTROL INDIA LTD, MUMBAI (463.95)*

 RELIGARE ENTERPRISE, DELHI (454.70)*
 NESTLE INDIA (2803.10)*
 BAJAJ HOLDING AND INVESTMENT LTD,
MUMBAI (748.5)*
*Price of a share.

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 Note on Companies.
 Is a mix basket of all INDUSTRIES, covering
 Textile Industry
 Manufacturing .
 Yarn Industry.
 Plastic Industry.
 Manufacturing (Cables, Wires)
 Chemicals & Organic Chemicals Industry.
 OEM (Automobile)
 Real Estate & development.
 Home appliance Industry (Consumer Durables)
 Insurance & Asset Mgmt Industry.
 Oil & Gas Industry
 Food Industry

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 Analysis.
 Beta (β), Beta is a measure of a stock's volatility
in relation to the market.
  By definition, the market has a beta of 1.0
 Beta > 1, (Eg – 1.5) More volatile than market.
 Mkt up by 10% & stock up by 15%
Beta < 1, (Eg - .5) Less volatile than market
 Mkt down by 10% & stock down by 5%
Beta = 0 , Movement of price is independent of
Market.
Eg – Betting in a race course.
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 Analysis & Findings.
 For Arrow Textile (example)

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 Analysis & Findings contd...
 Β eta < 1, i.e. 0.52. Less volatile.
 Mkt return 0.01 & Company stock return -0.01
 Not worth investing.

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 Result Tabulation.
 Return per Unit Risk of companies.

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 Analysis
 Three stocks-negative return.
 Birla Power Sol
 Paramount Comm.
 Arrow Textile
 Two securities-positive return (not attaractive)
 Zenith Birla
 Ansal House
 Five are giving good return.
 Force Motors
 Panasonic Home
 Transpek Industries... etc

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 From an investor’s point of View
 S/he makes a portfolio of
 Force Motors
 Panasonic Home
 Transpek Industries
 GTN Industries

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 Portfolio Analysis.
Portfolio Return = R1W1 + R2W2 + R3W3 +R4W4
= 10*0.33 + 17*0.28 + 5*0.22 + 9*0.17
= 10.69 %
Portfolio Risk = σ1W1 + σ2W2 + σ3W3 + σ4W4
= 12.74*0.33 + 25.48*0.28 + 9.78*0.22 + 21.98*0.17
= 17.23%

Inference - S/he can decide to invest all monies in .

1. Force Motors (Roi 10%, risk 12.7%,R/R +.7)
2. Portfolio (Roi 10%, risk 17.3%, R/R +.62)
* R/R – Return per unit of risk
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 Research & Findings.
 Analysis of Small stocks Portfolio.

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Research & Findings( Class A)

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 Hypothesis & Conclusion.
 Null Hypothesis (Ho): The risk factor is equal in both
the cases, whether it is small stock or
large stock.
 Alternative Hypothesis (Ha): The small stocks are
more risky than the large stocks.

Return/risk (Small) = +0.62 (10.69/17.63)

Return/risk (Large) = +1.36 (6.51/4.78)
H0 Rejected, Ha accepted.
- Yet the return per unit risk is more in case of large
stock securities
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Thank you

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