Small cap stocks are ones that have a small capitalization. Generally this could be around Rs 100-Rs 200 crores. While selecting the some of the best small cap stocks we have taken ones that have been traded continuously and are fairly liquid. These stocks are also part of the BSE Small cap index.

1. Ahluwalia Contracts

This is one EPC company that will benefit tremendously from the government spending on infrastructure. In fact, the order book of the company was close to Rs 37 billion. This gives tremendous visibility in earnings of the company for the next few years.

Among the prestigious projects in various segments completed/under completion include:

a) IIT, Mandi
b) National Institutional of Fashion Technology, Delhi
c) Medical College and Hotel campus for government of Haryana
d) Moser Baer Plant
e) AIIMS Trauma Centre, New Delhi

For the full year FY 2015-16, the company is likely to achieve an EPS of around Rs 17, which takes the p/e multiple to around 14 times at the current market price of Rs 243. For FY 2016-17, the company is likely to achieve an EPS of Rs 22, which takes the p/e multiple to 11 times.

Given the growth potential of Ahluwalia Contracts in the near future, the stock is amongst the best small cap stocks in the EPC space.

2. GIC Housing Finance

Housing Finance company stocks have been outperforming the benchmark indices lately. We have seen a sharp rally in some of these stocks. GIC Housing also has gained ground in the last one year. Recently, the company reported a sterling set of quarterly numbers, with a net profit growth of 15 per cent.

A number of brokerages have suggested buying the stock of GIC Housing on account of the strong demand that is likely to be seen in urban demand for housing. With the government's focus on housing for all by 2022, the focus will remain on demand for housing loans.

In fact, housing finance companies have been showing robust growth quarter on quarter and the trend is likely to continue.

A drop in interest rates is likely to fuel further demand and push loan growth at the company. The company is likely to report an EPS of Rs 20 for the current year. This discounts the current market price of Rs 213 around 10 times. The stock is an attractive small cap stock at the current levels.

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