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3 Best Promising Small Cap and Mid Cap Stocks to Buy in October 2023

promising small cap and mid cap stocks to buy

Investors in promising small cap and mid cap stocks are generally the ones who look for up-and-coming young companies which focus on growing fast. These are the companies who look to become large-cap stocks in the future. Small-cap stock investors intend to beat institutional investors through their focus on growth opportunities. Some of the promising small cap and mid cap stocks historically have surpassed the returns delivered by renowned large-cap stocks. However, small-cap stocks are more volatile and riskier. There are several advantages of investing in promising small cap and mid cap stocks.

Since such companies are much smaller in size, they tend to have more growth potential in comparison to large-cap companies. As the result, the investors in such stocks have potential to book significant profits. Share price of promising small cap and mid cap stocks is often lower, which makes the initial investment of an investor much easier. Apart from this, share prices of such small cap stocks cannot be artificially pushed up through mutual funds or hedge funds. This is because there are regulations set in place to prevent financial institutions from making significant investments in them. 

It is not necessary that small-cap companies belong to the start-up space. Such companies are found across industries and, more often than not, these companies have been in their respective businesses for quite a while. As a result, there are a variety of options for investing. Since there is not lot of information available about small-cap companies, they are not well-known as large and mid-cap companies. As a result, such companies are often priced below their value and can offer strong return on investment. 

However, before investing in some of the promising small cap and mid cap stocks, it is of utmost importance to keep in mind that such stocks are highly volatile and they carry significant amount of risk. Apart from this, there can be liquidity issues. 

With these measures and precautions in mind, let us now have a look at some of the promising small cap and mid cap stocks to buy in October 2023. 

1. IIFL Finance Limited

IIFL Finance Limited has been categorised as one of the leading players in financial services sector in India. Along with its subsidiaries – IIFL Home Finance Limited, IIFL Samasta Finance Limited and IIFL Open Fintech Private Limited, the company offers diverse range of loans and mortgages. These consists of home loans, gold loans, business loans, etc. 

For the quarter ended June 30, 2023 (1Q24), the company saw NPAT of INR473 crores (before non-controlling interest), exhibiting a rise of 43% year-over-year. PBT of the company was INR618 crores, up by 43% year-over-year. The company saw healthy loan growth in core products as gold loans and home loans AUM went up by ~29% and ~23% year-over-year, respectively. Microfinance saw an increase of 63% while Digital loans and Loan against property went up by ~54% and ~19% year-over-year, respectively. 

The financial year for the company has begun well, with economic activity exhibiting strong growth. Focus of the company is on productivity improvement and sharpening its digital edge in present year. In 1Q24, the company saw growth across its core retail segments without any major expansion. As the result, this should enable improved operating efficiency and performance. 

Cash and cash equivalents and committed credit lines from banks and institutions of the company was to the tune of INR6,510 crores as on June 30, 2023. During 1Q24, the company raised INR4,504 crores through the use of term loans, bonds and refinance. Additionally, INR4,155 crores was raised through direct assignment of loans. Total CRAR was at ~20.6% as at June 30, 2023 against minimum regulatory requirement of 15%. 

2. Tanla Platforms Limited

The company has been categorised as a global leader in the list of cloud communication providers in the world. Over past couple of years, the company has developed and delivered cutting-edge technology and products, meeting discerning needs of diverse clientele, from enterprises to carriers throughout geographies.

Tanla Platforms Limited has announced its financial results for 1Q24, where the company’s revenue went up by ~14% year-over-year to INR9,111 million and its gross profit was at INR2,413 million. The company saw gross margin of 26.5%. EBITDA of the company was at INR1,822 million, while EBITDA margin came at 20.0%. PAT of the company grew by 35% year-over-year to INR1,354 million and its EPS went up by 36% year-over-year to INR10.07. 

The company made the acquisition of ValueFirst Digital Media Private Limited, India (and its subsidiaries) from Twilio. Acquisition was closed on July 03, 2023, which involved an all- cash consideration of $45.5 million (INR3,737 million). 

3. CESC Ltd

The company has been categorised as India’s first fully integrated electrical utility company ever since 1899, and it generates and distributes power in Kolkata and Howrah. 

Even though electricity tariffs remained unchanged during FY23, the company’s total income on a standalone basis (i.e., revenue from operations plus other income) grew by 9% to INR8,153 crore in FY23. Operating costs of the company saw an increase during FY23, largely because of high fuel costs. Consequently, PBT of the company saw an increase of 1% over previous year, and came at INR1,060 crores. Profit after tax of the company increased by a bit under 2% to INR830 crore. On consolidated basis, the company’s total income grew 13.5% in FY23 to INR14,555 crore.

Policy initiatives by Indian government like focus on manufacturing EVs and universal electricity access should contribute to growth in electricity demand. Proposed deregulation of power sector, which includes de-licensing of distribution, should be able to open-up further opportunities for efficient power utilities. This should augur well for the company in upcoming years as it has sufficient expertise in both power generation and in operating distribution networks throughout India. 

As world moves more aggressively for cleaner technologies and fuels to address climate obligations, the role of electricity as preferred form in which energy gets consumed should mean strong growth for entire sector. 

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