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Is It the Right Time to Buy Richa's Small Cap Stock Recommendations Now? - Private Briefing

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Is It the Right Time to Buy Richa's Small Cap Stock Recommendations Now?
Sep 14, 2018

Last week I wondered if the market was correcting or if was just taking a pause before heading to 40,000 and beyond.

This week, I think we got our answer. The sentiment seems to have turned positive.

As per news reports, Prime Minister Modi himself will take stock of the economic situation in a high-level meeting.

Rumours of an economic stimulus package have started to do the rounds.

If this is indeed a shift in sentiment, then the battle between the bulls and the bears will end in a decisive win for the bulls.

Sensex 40,000 will be a minor blip on the way to new highs. We could even see euphoria (a sure sign of a bull market peak) in the market if the rally extends well above 40,000.

In such a situation...which stocks do you think would be the best bet?

Small caps would be the answer if you asked the Equitymaster research team.

As you may know, at Equitymaster, when it comes to small caps, Richa Agarwal is in charge.

I would suggest you take a couple of minutes to read what Richa has to say about her approach...

  • Unlike big companies that're well covered by media, fund managers, analysts, and brokerages, very few are tracking this space.

    It does not help that the management of these companies are hardly invited by the media for investors to get a sense of the business.

    Often, all these companies have in the name of disclosures is an annual report that barely runs into 60-odd pages.

    The general perception is 'this space is risky'. There is some truth in that. A lot of shell companies, fly by night businesses and operators belong to this space.

    But if you notice, it's the lack of knowledge, rather than quality that makes people stay away from this space.

    A 'boots on the ground' approach can plug this knowledge and trust deficit.

    Visting company's plants and interacting with the managements, doing industry and competition analysis, getting insights from other people in the industry, scuttle-butting, and channel checks helps me weed out businesses with bad fundamentals.

    In meetings, it's not just about what the management says. Their tone, body language, and how they are dealing with challenges or respond to a tough question gives me a lot of insight.

    In business, past returns and performance are no guarantee of future. I know a lot of businesses that looked attractive purely the numbers and valuations. It was only after speaking to the management I got to know the various structural changes that were happening that would have made the business environment difficult.

    Also, these meetings often introduce me to a new stock idea like a listed competitor that the management really appreciates, or a listed supplier, or a listed client that the management swears by.
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