These Smallcaps Deserve a Place on Your Watchlist

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In a recent editorial - Insiders Vs Smart Investors: Who Would You Follow in 2024?, I highlighted the frenzy in the smallcap space.

The smallcap to Sensex ratio has touched an all time high and insider selling in stocks was six times of what was in 2018.

Now I hope my warning did not come across as a sell view on smallcaps.

It would have been a big mistake to stay away entirely from smallcaps in 2007 and 2008 when smallcaps were at their peak.

You see, at every top, there have been high growth and undervalued smallcaps available.

Even during 2008 peak, investing in stocks like Page Industries, Balkrishna Industries, Hawkins would have led close to thousand percent returns.

But hindsight is always perfect. And we are here not to dwell on winners a decade ago but the potential winners of the future.

So, let's now shift our attention to stocks with heavy insider buying in last four months.

Peter Lynch has said:

• "Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise."

Of all the stakeholders, it is the insiders who know the most about their businesses, and future potential.

If the insiders are willing to part with their personal money to buy stocks from open market, especially in markets like this, there is good possibility they believe the stock is undervalued and has good upside potential.

So, here is a list of stocks where insiders have shown buying interest, and that you keep on your watchlist.

I have specially focused on stocks where the current stock price is either close to or at a discount to average buy price of insiders.

I have also included only the stocks where the insider buying has been more than 0.5% of the marketcap.

The watchlist that I have arrived at includes Tide Water Oil, VIP Industries, and Ami Organics.

For instance, Tide Water Oil, a lubricant industry player, has witnessed insider buying worth Rs 1.2 bn in December 2023, with promoters buying almost 5% of marketcap.

The company has a debt-free balance sheet and healthy return ratios, a PE of 19.5 times and offers a dividend yield of 3%.

VIP Industries is another smallcap with sharp insider buying. Promoters have bought shares worth Rs 470 m from the open market in December month, at an average price of Rs 606.

The company has witnessed impressive growth with some strategic decisions like shift from China sourcing to own manufacturing.

From 867 towns in FY20, it has expanded its presence in 1,355 towns. Its financials remain healthy. At a PE of over 60, the stock is not cheap. But it makes the cut for the watchlist.

Another stock with strong insider buying is Ami Organics, a specialty chemical smallcap where promoters have purchased Rs 420 m worth of shares from the open market in an off-market deal, at an average buy price of Rs 1,164.

This is not too far from the current price. Its key products command a strong 50-90% market share.

It has recently entered a new segment and has become the first companies outside of China to develop and manufacture an additive electrolyte for cells that are used in energy storage devices.

It has also announced a strategic global collaboration for manufacturing electrolytes for battery cells and allied materials.

Also, through an acquisition, it has forayed into semiconductor industry. With a benign debt to equity and healthy return ratios, this is yet another candidate to be kept on the watchlist.

Please note these are not buy recommendations. I'm just sharing stocks that I believe deserve to be on your watchlist.

By the way, if you want to know how to set insider buying as your personal stock screening tool, watch the video below:

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)