Most multibagger recommendations focus majorly on small cap stocks rather than large cap stocks. After all large cap stocks are those which already had significant run up and trade at higher valuations while small cap stocks are available at low prices and have the potential to grow big in future.
However there are too many things that can go wrong when it comes to investing only in multibagger recommendations of small cap companies. Small cap companies are mostly startup firms or companies which are in developing stage with low revenues. These have the huge potential to grow and become large cap companies with time. Stocks of small cap companies are prone to market volatility, fall more than other category stocks and usually are the slowest to recover when the market recovers.
That’s why the ideal way to invest would be by diversifying your portfolio based on small cap, mid cap and large cap stocks.
Experts recommend no more than 30-40% exposure of your overall portfolio to small cap multibagger recommendations. To maintain a stable portfolio one should also have 30-40% exposure to large cap multibagger recommendations and rest in mid cap companies.
Here’s why you should also invest in multibagger recommendations of large cap companies:
Stability
Large cap companies are well established companies with a stable business model and stable revenues. Such companies are less prone to volatility. During market corrections, large cap companies fall by smaller margins as compared to small cap companies.
Apart from stability, large cap companies offer dividend regularly which is great way to earn passive income for investors.
Many large cap companies such as Maruti, Infosys, MRF, ITC, Asian Paints are TCS are currently trading at high valuations but despite this still feature as top investment bets in many multibagger recommendations due to their high growth rate and potential.