Currently small cap and mid cap stocks are in boom because of mutual fund scheme reclassification circular issued by SEBI. SEBI has mandated multi cap mutual fund schemes (Funds investing in small, mid and larger cap companies) to invest min 25% each in Small cap, Mid cap and Large Cap. Because of this market is anticipating that Rs. 25,000 Cr to Rs.30,000 Cr will flow in small cap and mid cap companies. It is very difficult to predict actual quantum of money that will flow in these small cap and mid cap companies. Investors should not suffer from FOMO (fear of missing opportunity/out) and start buying any small or mid cap company. Investors should remember that over a long term, returns from a company shall align with earnings growth of that company, may it be small , mid or large cap company.
Any Investor who is looking to take advantage of this SEBI circular should be cautious while selecting stock. Thomas Phelps, who has undertaken study of 100 bagger (Rs. 1 grows to Rs. 100) stocks , has summed up stock selection criteria as below:
1. Size of company should be small
2. Relatively unknown (So no or negligible ownership by institutional investor)
3. Selling unique product or service
4. Competent and visionary management
After selecting the company based on these factors, investor should keep in mind below quote.
To make money from wonderful companies/stocks you must have “Vision to see them, courage to buy them and the patience to hold them”. Patience is the rarest of the three