Smallcase
In this blog, we will discuss 2 things.
- What is smallcase investing?
- Why should smallcase investing be considered, especially when there are stocks, there are mutual funds?
First-: What is a smallcase?
As I have said, whenever you invest in the stock market, there are typically three methods.
1st Method-: Trading
I don't focus a lot on it because I'm not an expert, but trading is you betting on short-term movements of a stock price.
So, if the stock goes from ₹100 to ₹102, then you will bet on this movement of 2%, and you will buy and sell within a day.
This is also F&O or Futures and Options trading, or derivatives trading, where you may not sell within a day but may sell after some time, but you are betting on the movement of the price of the stock in a short-term period.
2nd Method-: Buying Stocks Directly
The really good stocks, the company is good, the revenue is good, the profit is good, the market share is good, the industry is growing, the governance or management team is good, all those things that you want. And then, of course, there are ratios, there's PE ratio, by how much is EPS increasing? What is the actual value? What is the debt-equity ratio? So on and so forth.
But like I'm explaining this to you, this is not something that you and I are capable of, I'm assuming on your behalf, but at least, I'm not. I know a few stocks, I bet on them properly, but for me to identify, what would be multi-bagger? Multi-bagger is those stocks that give a lot of returns over some time, like 5-10 times the return.
That becomes very hard because that requires expertise, it requires deep research, it requires you to go deep into the industry, into the market, into the company. I don't have the time and expertise for all that.
3rd Method-: Buying A Portfolio Of Stocks
Here in a way, you are assigning someone for all the research and expertise. Because what they are doing is, they are researching on your behalf, and they are essentially helping you buy into a portfolio of stocks.
When you buy a portfolio of stocks or a group of stocks, as against buying just one company's stocks, then you mitigate your risk as well.
For example-: If you want to participate in the chemical industry, pharma industry, or auto industry, now you don't know the best company in chemical, pharma, or auto, but can know who are the top 10 players because that's far easier. And if you were to buy the stocks of top 10 auto companies, pharma companies, or any such industry, then you are going to get just as good returns, definitely not as good as the stock you buy if that stock works, but at the risk-adjusted level, you will get pretty good returns. Because God forbid if one company goes down, the other company will go up. If the revenue projections go wrong in the other company, the fourth company will cover it up, so those 10 companies will in some way give you the needed return.
Smallcase allows you to buy a portfolio of stocks that are based on ideas. And I will tell you what that means, but that is what is smallcase. It's a buying or an investing process where you buy into an idea, against just one stock.
Second-: Why should I consider smallcase investing?
It sounds very similar to mutual funds, so why should I consider smallcase investing?
There are 3 reasons for it
Number 1-: You Are Investing In Ideas
What does that mean?
It means whenever you will look at a portfolio of stocks that are run by managers, then typically they are focused on the return of the mutual fund. So one would be high growth, another would be medium growth, another would be small-cap, and another would be large-cap, but you very rarely get a representation of ideas.
For example-: one idea is that the rural sector of India will experience very good growth in the next 10-20 years. Their disposable income will increase, and they will get a lot of facilities, tools, and technologies, so while sitting at home they will be able to experience as much growth in their rural sector as urban growth. Now, what if you want to bet on that? What if you want to bet on companies that are catering to the rural economy of this country? It's very difficult to do this through any other portfolio of stocks but in smallcase, you can do that.
So when you look at something like Rising Rural Demand, this is io of stocks, a small case that allows you to invest in all the companies that are going to benefit from the rising rural demand.
So these small case has companies either derive a significant amount of their revenue from rural India or are striving to enhance their foothold across rural markets to benefit from increasing rural demand. This is a very powerful idea.
Based on this there is another one called, Great Indian Middle Class. India's middle class is constantly expanding, their disposable income is increasing. They are getting their houses painted more, they are eating out more, they are buying more cars, and they are spending more on travel.
So what are the companies that are benefiting from that, and can I invest in those companies? Because I know that the companies which bet on India's middle class in the next 10-20 years are likely to do well. What is a great way of doing that? Smallcase.
So you look here, this small case includes companies that are expected to benefit from the growth in the Indian middle class. House of Tata. You love Tata Group, you like all the companies of Tata Group, whether it is Titan, TCS, or Elxsi, so what do you want to do if you want to invest in these companies?
Number 2-: All The Research Is Done By Experts
You are not doing it. You don't have to find out which stocks you should buy, which company's portfolio you should make, or what should be its weightage, all of that is done by experts.
They will not just tell you which stock to buy in what quantity, but they will also tell you that every week, or every month, or every quarter, or every year, if there is any change, then how to execute that change. You just have to click on the smallcase app or the desktop version and complete the process.
Number 3-: You Get 100% Control And Ownership
You get 100% control and ownership at all points in time because smallcase is connected through your Demat account, so wherever you open your Demat account, it could be Zerodha, it could be Upstox, it could be 5paisa, it could be Angel Broking, so wherever is your Demat account, you connect your smallcase to it, that is when you will be able to buy and sell smallcases.
So whenever you will buy something then those stocks will not be in smallcase, they will be in your Demat account. Whenever you sell something, you will not sell it through smallcase, it will be sold through your Demat account. So you at all points in time have 100% ownership over the stocks that you buy through smallcase.
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