What are the risks of investing in small-cap stocks in India ?
Open Demat Account - 5paisa Investing in small-cap stocks (typically companies with a market capitalization under ₹5,000–10,000 crore) can offer high growth potential but comes with **significant risks**. Here’s a detailed breakdown of the key risks and how to mitigate them: --- ### **1. Extreme Volatility** - **Price Swings**: Small-caps can fluctuate **20–30% in weeks** due to low liquidity or market sentiment. - *Example*: Suzlon Energy surged 1,000% in 2023 but crashed 50% in early 2024. - **Trigger Events**: Poor earnings, promoter pledging, or sectoral downturns amplify swings. **Mitigation**: Allocate only **10–15% of your portfolio** to small-caps. --- ### **2. Liquidity Risk** - **Low Trading Volumes**: Many small-caps trade at <₹5 crore/day, making exits difficult. - *Example*: You may get stuck with illiquid stocks like **Himadri Speciality Chem** during sell-offs. - **Wide Bi...