What is micro-cap in stock market?

Micro-cap stocks refer to companies with a relative market cap of under Rs 5,000 crore. Market capitalization, or market cap, is calculated by multiplying the total number of a company's outstanding shares by its current stock price.

These micro-cap stocks are situated at the lower end of the size spectrum within the stock market. While they present opportunities for investors seeking high returns, they also come with increased risks due to their smaller size and lower liquidity.

Read More: Some of Micro cap stocks list in india

Characteristics of Micro-Cap Stocks:

1- Market Capitalization Range:

Micro-cap stocks typically have a market value of less than Rs 5,000 crore. It is bigger than nano-cap stocks but smaller than small-cap stocks.

2- Volatility:

Small stocks, or micro-caps, are more unstable than big ones. Their prices can change quickly, which can be both a chance to make money or a risk for investors.

3- Lack of Analyst Coverage:

Small company stocks usually get less focus from financial experts and big investors than bigger companies. It makes it hard for investors to find trustworthy information.

4- Limited Liquidity:

Micro-cap stocks are small, so they often have lower trading volumes. It means they may be more challenging to buy or sell without changing the stock price due to their limited liquidity.

Opportunities and Risks:

1- High Growth Potential:

Small stocks often have the chance to grow a lot. Some successful small businesses may grow quickly, giving investors big returns.

2- Increased Risk of Failure:

On the other hand, micro-cap companies' smaller size also raises the chance of business failure. They might need help with funding, competing in the market, and other business operations.

3- Less Scrutiny:

Fewer analysts look at micro-caps so that you might find undervalued or ignored stocks. But this also means you need to research well to spot good investment chances.

Also Read: Cap Sizes Matter in stocks market: Understand  Large Cap, Mid Cap & Small Cap