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Analysis of Stocks of Small Companies: Amit V. Kanneshwar, F2, SS 08 - 10, IIPM Bangalore

This document analyzes stocks of small companies between $300 million to $2 billion in market capitalization. It discusses the pros and cons of investing in small caps, including higher growth potential but also higher risk due to thin markets. A number of specific small cap companies are analyzed in terms of their beta, volatility, and returns. Based on this analysis, the document concludes that while small caps have higher returns, large caps have a better return per unit of risk, so large caps are less risky investments despite lower growth potential.

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39 views17 pages

Analysis of Stocks of Small Companies: Amit V. Kanneshwar, F2, SS 08 - 10, IIPM Bangalore

This document analyzes stocks of small companies between $300 million to $2 billion in market capitalization. It discusses the pros and cons of investing in small caps, including higher growth potential but also higher risk due to thin markets. A number of specific small cap companies are analyzed in terms of their beta, volatility, and returns. Based on this analysis, the document concludes that while small caps have higher returns, large caps have a better return per unit of risk, so large caps are less risky investments despite lower growth potential.

Uploaded by

kanneamit
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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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

2
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

3
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.
4
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.

5
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

6
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.
7
Analysis & Findings.
 For Arrow Textile (example)

8
Analysis & Findings contd...
 Β eta < 1, i.e. 0.52. Less volatile.
 Mkt return 0.01 & Company stock return -0.01
 Not worth investing.

9
Result Tabulation.
 Return per Unit Risk of companies.

10
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

11
From an investor’s point of View
 S/he makes a portfolio of
 Force Motors
 Panasonic Home
 Transpek Industries
 GTN Industries

12
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
13
Research & Findings.
 Analysis of Small stocks Portfolio.

14
Research & Findings( Class A)

15
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
16
Thank you

17

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