These microcaps survived COVID-19; delivered up to 1,000% returns

Small investors have raked in the moolah by investing in microcap firms amid the ongoing bull run since April 1. The financial year 2021 turned uncertain for investors due to the Covid-19 pandemic. However, robust liquidity measures coupled with sustained inflows by Foreign Institutional Investors (FIIs) took the benchmark equity indices BSE Sensex and NSE Nifty to record high levels.

Around 35% of the stocks (out of 320 microcaps) have also more than doubled their wealth with Zenith Health Care gaining the most (1,002%) to Rs 9.81 from Rs 0.89 on March 31 last year. Retail investors held 56.89% stake in the company as of December 31 against 52.83% in March 2020.

With a gain of 737%, Palred Technologies emerged as another major gainer in the list. It was followed by Biofil Chemicals (up 716%), Goenka Diamond (up 668%), Standard Batteries (up 563%) and Cosmo Ferrites (up 480.32%).

Companies with a market capitalisation of less than Rs 100 crore are considered microcap. Before going ahead, here is a disclaimer that microcaps and penny stocks are highly volatile and investors should consult their financial advisors before taking any positions.

Among the other top gainers, Symbiox Investment & Trading, Goyal Associates, Trejhara Solutions, J Taparia Projects, Modern Diaries, Nettlinx, Digjam, Prakash Steelage, Indosolar, Jindal Photo and IZMO have also advanced between 290%-450% since April 1.

Going with market experts, gullible retail investors should avoid penny or microcaps as they are highly risky in nature. Some microcaps have eroded more than 50% of wealth despite the rally in the domestic equity market. The benchmark BSE Sensex has gained 75% to 51,703 on February 17 from 29,468.49 on March 31.

Analysts believe that investing in penny or microcap stocks, let alone big or small, same aspects of a good promoter, scalable business model, some competitive advantage which its peers is lacking would be the one to watch out for. Rather than looking for ROE (return on equity) metrics to invest in such stocks, it would be better if one set a checklist of what not to buy while investing in microcaps.

Devhari Exports (India) tanked 82% to Rs 0.86 on February 17 from Rs 4.65 on March 31 last year. Likewise, Panth Infinity, Otco International, Shivom Investment & Consultancy, Suncare Traders, Svaraj Trading & Agencies and Mitshi India have also declined more than 60% during the same period.

(Disclaimer: Stocks mentioned in the article are for information purpose only)