Hidden Treasure: Research on Indian Small Cap Stocks from Equitymaster
 
Hidden Treasure from Equitymaster
VIEW SAMPLE REPORT | CUSTOMER REVIEWS

Investing in smallcaps is fraught with risks unless done with the necessary diligence and 'feet on the ground'.

Our Hidden Treasure stock recommendation service aims to help you select the potential gems from a risky but highly profitable pool of small cap stocks that have solid managements and visible long term business growth potential.

What was our 'big picture' idea behind starting this service dedicated exclusively for picking small cap stocks? We saw that the small cap universe was a fairly under-researched space. Because of a dearth of independent and unbiased research on small cap stocks, many investors have burnt their fingers by making uninformed investing decisions. We realized that with a sound investing process, the small cap space offered investors the potential for multibagger returns.

So we have a specialized team dedicated to researching high potential small cap stocks. What the team essentially looks for are companies with stable and sustainable business models that have long term growth visibility, some durable competitive advantage over competitors and last but not the least, good quality management. Over the years, we have endeavored to constantly refine and strengthen our research process. While the smallcap stocks are inherently more risky than blue chip stocks, we have created our own screeners and filters that help us eliminate highly risky smallcap stocks. Our mantra is to find profitable long term investment opportunities in the smallcap space without taking undue risks.

The Hidden Treasure team travels the length and breadth of the country to personally meet the managements of dozens of companies every year. This is then followed by a diligent study of the company's future growth prospects, profit margins, return on capital and valuations. Only the stocks that turn out to be the best - both from business and valuations perspective - are recommended to the subscribers. Further, our proprietary tool -The Equitymaster Risk Matrix (ERMTM) is used for an objective and thorough risk analysis of the smallcap companies.

As a member of our Hidden Treasure service, you will receive our views on the various investment opportunities and our top recommendations in an exclusive report that is published on or before the 15th of every month. The reports will be sent to you in the form of monthly e-mail with links to online report and downloadable report in PDF format. The tenure for our recommendations is long term - usually three to five years.

Besides an in depth analysis of the strengths and weaknesses of the company, the report also objectively rates every stock on The Equitymaster Risk Matrix (ERMTM).

The other two parts of the report are the Monthly Performance Review and the selection of 'Top Stocks to Buy Now' for the month. The performance review covers each and every stock that is in open position and offers updated views and target prices on the same. In addition, as and when a corporate action (follow on offers, rights issues, mergers and acquisitions, etc) or other events warrant an updated view on the stock we do publish a special report exclusively for our Hidden Treasure subscribers.

What does Hidden Treasure offer?
Through Hidden Treasure, we aim to bring you an exclusive one-stop research service dedicated to researching and providing independent and unbiased views on high potential smallcap stocks.

The Hidden Treasure team comes out with a detailed recommendation report every month that includes:

  • One fresh recommendation with detailed analysis and valuations
  • Latest views and updates on existing recommendations
  • 'Top Stocks To Buy Now' based on risk matrix score and expected returns

In addition to these features, you are provided with quarterly result updates of smallcap stocks under coverage as well as special reports based on specific events that may have a material impact on the company's fundamentals.

In short, the Hidden Treasure services aims to handhold investors like you to uncover high potential smallcap stocks and to assist you with regular views and updates throughout the recommendation period.

Please do have a look at a sample report for Hidden Treasure.

Who is the editor of Hidden Treasure?
At Equitymaster, we have a specialized team dedicated to researching high potential small cap stocks. I, Richa Agrawal (Research Analyst), the Managing editor of Hidden Treasure along with my team, travel the length and breadth of the country to personally meet the managements of dozens of companies every year. And this is after pouring through the details of hundreds of small companies. I constantly scours the small cap universe for fundamentally strong companies trading at attractive prices. My strong belief that paying a slight premium for wide-moat companies is better than looking for cheap bargains has helped me avoid companies that could turn out to be value-traps. So what the team essentially looks for are companies with stable and sustainable business models that have long term growth visibility, some durable competitive advantage over competitors and last but not the least, good quality management.

What is the frequency of the reports and what is the minimum number of reports expected annually?
The Hidden Treasure service aims to help investors build a portfolio of promising smallcap stocks with solid managements and very visible long term business growth potential. As a member of our Hidden Treasure service, you will receive one detailed recommendation report every month which includes:

  • One fresh recommendation with detailed analysis and valuations
  • Latest views and updates on existing recommendations
  • 'Top Stocks To Buy Now' based on risk matrix score and expected returns

The detailed recommendation report is published on or before the 15th of every month. So annually, our subscribers are entitled to receive at least 12 recommendation reports.

In addition to these features, subscribers are provided with quarterly result updates of smallcap stocks under coverage as well as special reports based on specific events that may have a material impact on the company's fundamentals.

What can be the expected returns and how will the performance of Hidden Treasure be measured?
The Hidden Treasure services aims to recommend smallcap companies that have solid wealth creation potential. While the aim is to select stocks that can deliver compounded annual returns of at least 15% over a period of three to five years, there have been plenty of cases of stocks generating returns of upto 4 digits.

Having said that, since returns from stocks are subject to market risks, and since smallcap stocks are extremely vulnerable to market risks, we recommend investors to allocate not more than 3% of their portfolio to a single smallcap stock.

As far as the performance of the Hidden Treasure smallcap stock recommendation service is concerned, a recommendation is concerned successful if it breaches the target price within the given time frame or if a recommendation has offered more than 15% compounded annual returns over the entire duration of the recommendation. Our track record is audited by an independent auditor at the end of every financial year.

Here is something our subscribers have to say about their experience in Hidden Treasure...

What should be the allocation towards each stock?
Smallcap stocks, given their inherent risks, should find a limited allocation in your long term stock portfolio. As explained in our asset allocation pyramid, while the smallcap stocks could form up to 10% of your stock portfolio, the allocation to an individual stock must never exceed 2-3% of the overall portfolio, unless stated otherwise. This is to ensure that even if any particular stock unexpectedly underperforms, your overall portfolio performance remains resilient.

What should be the tenure of investment?
At Equitymaster, we are of the firm belief that real wealth creation happens when you invest in solid businesses for the long term. Keeping in sync with our investment philosophy, the investment horizon of our Hidden Treasure recommendations is about 3 to 5 years.

Where Hidden Treasure Fits In...
Stock markets tend to be very volatile. And putting too much money in a single stock or sector can be very risky. That is why we advise our subscribers to have a well-diversified portfolio. Small cap stocks are inherently more risky compared to large blue-chip or mid cap stocks. On the brighter side, they present a huge growth potential. It is not unusual for a good small cap stock to turn a multibagger in a matter of months. But on the flipside, there is a high risk attached. In fact, we have seen small cap stocks plunging 80-90% when things turn sour. That's why, even for investors having an appetite for risk, not more than 10% of one's portfolio should be invested in small cap stocks. And a single small cap stock should not form more than 2-3% of your portfolio. This will ensure that even if your investment in a particular stock turns out to be a failure, it will not have a very adverse impact on your overall portfolio.


I want to know more about Hidden Treasure. How should I proceed?
You can write to us with all your queries and we will be delighted to assist you. Alternatively, you can call us on +91-22-61434055 between 10 am to 6 pm from Monday to Saturday.

How can I try Hidden Treasure?
We are delighted to inform you that you can try Hidden Treasure completely risk free! There's a 30-day money back guarantee. So if it turns out that you don't like Hidden Treasure, we'll gladly give back every rupee you paid.

© Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Use of the information herein is at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Before acting on any recommendation, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: 91-22-6143 4055. Fax: 91-22-2202 8550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
 
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