The Big Smallcap Rally. Top 5 Leaders and Laggards...

How far do the stones fall? They fall only a little away from where they were thrown.

Do the same with a few pebbles and they will go a bit farther, but normally they will stay within the expected boundaries.

Do the same with sand and you won’t even see where the sand went. Maybe it flew far off, maybe it fell right near your feet or maybe it is still flying with the wind.

Small-cap stocks are just like that. Smallcaps offer huge growth opportunities but they are notorious for unpredictable returns.

They carry higher risks due to high volatility and low liquidity. Hence small-cap stocks can easily turn a multibagger portfolio into a multi beggar one.

Hence, a smart investor would do well to invest only in the fundamentally strong small-cap stocks. However, finding such stocks is no joke. It takes a lot of patience and research.

To aid your search, we bring a list of small-cap stocks that have been the leaders and laggards in the last year.

Read on to find out…

Top five leaders

#1 Cressanda Solutions

Cressanda Solutions provides software services, digital media services, and information technology (IT) enabled services. Its software services include onsite-offshore development of various business applications, IT consulting, and offshore application development, maintenance, testing, and migration services.

It also offers enterprise application integration, data warehousing, enterprise architecture, application development, enterprise portals, knowledge management, and project management.

Cressanda Solutions has given multibagger returns of 1,171% in the past one year.  

However, the company has not always been a star performer. From 2015 to 2021, the share price was in a comma and went nowhere. It did not move even an inch but the graph changed in 2021. 

At a time when most IT stocks were falling, Cressanda Solutions turned into a multibagger. 

The change in share price may be driven by the revival of its business, because it finally posted profitable quarterly results in December 2021. However, no concrete reason can be attributed to the sudden rise.

In May 2022, The company entered into an agreement with a large institutional client for providing tech-powered infrastructure solutions for unaddressed passenger experience in India. 

#2 Mirza International

Next on the list is Mirza International.

Mirza International was incorporated on 5 September 1979 with a small tannery for manufacturing finished leather at Magarwara near Kanpur. The company, established by Irshad Mirza and Rashid Mirza, was then called Mirza Tanners.

Today, the company has emerged as a frontrunner in the manufacturing and marketing of leather and leather footwear.

Mirza International’s share price was range bound until mid-2021. After that the share price has been rising constantly. On a YoY basis the share price has rallied 391%.

In fact, it has delivered positive returns every month of the financial year 2022-23.  

However, it should be noted that in the current circumstance it is overvalued based on the estimates of intrinsic value.

#3 Choice International

Choice International is one of India's leading Financial Services conglomerate catering to not only India but also the entire Globe. It has been in the industry since 1993 and as of date has expanded to be a go-to Finance company for a major chunk of Individuals as well as Institutions.

 After trading in a range bound fashion, the share price rallied in the last year. Choice International's share price rose 335% on a YoY basis. 

On 17 October 2022, the company declared its quarterly financial statements. On a YoY basis, the profit margins of the company contracted from 19.2% to 11.1%.

#4 Jyoti Resins and Adhesives

Jyoti Resins and Adhesives is engaged in manufacturing synthetic wood adhesives under its brand name EURO7000, which was launched in 2006. It is now the second largest selling wood adhesive brand in India in the retail segment.

Indian chemical sector received a blessing in disguise in form of the China plus one strategy. It also received an opportunity in contract research and manufacturing services (CRAMS). Import replacement also helped the growth of Indian chemical stocks.

Jyoti Resins and Adhesives was one of the stocks to receive the benefits of these tailwinds. After being stagnant for a long period, the company’s share price went up like a rocket near Diwali. On a YoY basis, its share price went by 323%. 

Five years ago, a stock that traded around the price range of ₹20, is now trading at a price of ₹1,274.2. The share price has appreciated more than 6,200% in the last five years.

Jyoti Resins’ financial quarterly performance has been consistently improving. Net profits margins and sales all have seen a gradual rise on YoY and QoQ basis.

The company became the talk of the town when it declared a bonus. On 17 May 2022, it announced 2:1 bonus shares and a 75% final dividend for the financial year ending March 2022. 

#5 Automotive Stampings and Assemblies

Automotive Stampings and Assemblies is a Tata group company. The company is engaged in the business of manufacturing sheet metal stampings welded assemblies and modules for the automotive industry.

They have four manufacturing facilities located at Bhosari (Maharashtra) Chakan (Maharashtra) Halol (Gujarat), and Pantnagar (Uttarakhand). It manufactures sheet metal components, welded assemblies and modules for automobiles. 

Automotive Stampings has given multibagger returns of 310% on a YoY basis.  

The company’s financial performance is weak. It was only in the last financial year that the company posted profitable financial results before it was incurring losses. Even for the quarter that ended June 2022, the company reported a net profit of ₹7 m, which is low. 

With the gainers done and dusted, let’s move on to the laggards.

Top five laggards

#1 Future Retail

Future Retail is an India-based company, engaged in the business of retailing a range of household and consumer products through departmental store facilities under various formats. The company is primarily engaged in the business of multi-brand retail trade.

Murphy’s Law says that, Anything that can go wrong will go wrong.

This is absolutely true of the Kishore Biyani-led Future group. High debt and too much diversification are some of the reasons for its Future group’s downfall. 

Future Retail was the main player in the group. However, the company was in trouble when earlier this year, Reliance took charge of 835 stores across Future Retail’s stores one account of non-payment of lease rentals.

The company went deeper into trouble when in April 2022 as much as 69 per cent of the flagship Future Retail’s secured creditors rejected the deal proposed in August 202.

In August 2020 Reliance Retail agreed to buy out the wholesale, retail, and logistics businesses of Future Group for ₹247.1 bn.

Bank of India has already filed an insolvency petition against the company. No wonder the share price fell 94% in the last year.

In fact, in the list of two laggards, two more Future group stocks have made a place. On a YoY basis, Future Lifestyle Fashions' share price is down 87% while Future Consumers' share price is down 76%.

#2 Sadbhav Engineering

Sadbhav Engineering is an Indian civil engineering and construction company headquartered in Ahmedabad, Gujarat. 

It was founded in 1988 by Mr Vishnubhai M. Patel and the company has implemented projects in the construction of Roads & Highways, Bridges, Mining and Irrigation supporting infrastructure etc. 

The company worked for clients including NHAI, DMRC, Sardar Sarovar Narmada Nigam, Coal India, L&T, HCC, Punj Lloyd, and various others.

On a YoY basis, the share price has a massive fall of 74%. The fall in share price is due to poor financial performance. 

For the financial year 2021-22, Sadbhav Engineering's consolidated net loss widened to ₹7.3 bn from ₹2.4 bn reported in the previous year. The company's consolidated revenue from operations also declined 15% to ₹19.1 bn from ₹22.4 bn in the previous year.

The group's operations were impacted due to inflationary pressure and resources constraint during FY22. Besides, it was also due to slow order execution, which has been accentuated by high working capital lock-up and unavailability of additional banking limits.

In fact, we had highlighted in an editorial that Sadbhav Engineering is one of the penny stocks that could go bust.

#3 Dhani Services

Dhani Services provides consumer business that operates through its application "Dhani". The Company offers digital healthcare and transactional finance offerings.

The company was founded by Sameer Gehlaut in 1995, as Indiabulls Ventures Limited which was later renamed Dhani Services Limited in October 2020, to accommodate the consumer business of the Indiabulls Group under one brand name.

On a YoY basis, Dhani Services' share price fell 40%. The massive downfall started with one headline that read "Hundreds fall victim to PAN identity theft on Dhani App". 

Several users of the app had taken to Twitter to raise concerns that their personal financial information was being misused by unknown third parties to seek loans on the app.

#4 Solara Active Pharma Sciences

Solara Active Pharma Sciences is a customer-oriented API firm. It has a legacy of over three decades and traces its origins to the API expertise of Strides and the technical know-how of the human API business from Sequent Scientific.

On a YoY basis, the share price fell around 66%. The fall in share price can be attributed to poor financial performance. 

Q3 of the financial year 2022 was a challenging quarter for Solara Active Pharma Sciences as the company took a major decision to reset its commercial business strategy. Solara pursued a change in the commercial model from distribution-led to direct sales to customers in less regulated markets.

#5 Xelpmoc Design and Tech

Xelpmoc Design and Tech provides information technology services. The company offers platform development, testing, deployment, maintenance, data science, and other related services.

It is a technology, data analytics and design company, focusing on solving real problems affecting people at large. 

On a YoY basis, the share price fell around 66%. The fall in share price is due to poor financial performance. 

The net loss of Xelpmoc Design and Tech reported ₹39.4 m in the quarter that ended June 2022 as against a net loss of ₹15.3 m during the previous quarter that ended June 2021. 

Sales declined 1.2% to ₹32.1 m in the quarter that ended June 2022 as against ₹3.3 m during the previous quarter that ended June 2021.

Another reason behind the fall is the global tech stocks selloff, which has also sent Indian IT companies in the dumps.

Investment Takeaway

Small-cap stocks can be fortune makers or fortune breakers. The high volatility of small-cap stocks makes them attractive and risky at the same time.

Many blue-chip stocks were once smallcaps. But not all small-cap stocks will become future bluechips. The rally in small-cap stocks seems attractive but one has to be careful because some of these rallies are just news driven.

Consider smallcaps as a speeding car. One has to see if the car has enough fuel, and good roads. If not, the car will either meet an accident or it will stop in the middle of the road. Like the above-mentioned Future group ran out of fuel to repay its debt.

Hence, investing in small-cap stocks is an art that can be mastered only by an understanding of the fundamentals and growth prospects of a company. 

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. 

This article is syndicated from Equitymaster.com