Last Updated on Dec 12, 2022 by
Everyone is aware of investment options like mutual funds and stocks. For a first-time investor, it is important to be aware of the investment concepts as they can help you make better investment decisions. Market capitalisation is one such key aspect an investor must understand before investing. The companies in the stock market are classified based on the market capitalisation as small-cap, mid-cap and large-cap. In this article, let’s learn about market capitalisation and the difference between small-cap, mid-cap and large-cap.
Table of Contents
What is market capitalisation?
Market capitalisation is also known as market cap. It describes the total market value of the total shares held by shareholders of a company.
Let’s take an example to understand the market cap better.
XYZ Company has 10,000 outstanding shares in the market, and each share of the company is Rs. 50. The market capitalisation of a company is calculated with the following formula.
Market cap = outstanding shares x price per share
= 10,000 x 50 = 5,00,000
Therefore, the market capitalisation of XYZ Company is Rs. 5,00,000.
Types of market capitalisation
In 2017, the Securities and Exchange Board of India (SEBI) established a few regulations to categorise companies according to their market cap. There are three market capitalisation types:
1. Small-cap
Companies with a market capitalisation of less than Rs. 5,000 cr. are small-cap companies. The rank of these companies starts from 251 on the stock exchanges. Small-cap companies don’t have a long track record. These could be start-ups or businesses in the early stages of development.
2. Mid-cap
Companies with a market capitalisation of more than Rs. 5,000 cr. and less than Rs. 20,000 cr. are known as mid-cap companies. On the stock exchanges, these companies are ranked from 101 to 250. In the long-run mid-cap companies have the ability to become large-cap companies.
3. Large-cap
Companies with a market capitalisation of more than Rs. 20,000 cr. are known as large-cap companies. On the stock exchanges, these companies are ranked from 1 to 100. These are well-established companies with a prominent market share. The large-cap companies are the ones which have been in the market for a longer time. These companies are actively traded in the market.
Difference between small-cap, mid-cap and large-cap
Here’s small-cap vs mid-cap vs large-cap as per the important investment aspects
| Aspects | Small-cap | Mid-cap | Large-cap |
| Market capitalisation | Less than Rs. 5,000 cr. | Rs. 5,000 cr. to Rs. 20,000 cr. | More than Rs. 20,000 cr. |
| Liquidity | Low liquidity compared to mid-cap and large-cap | Moderate liquidity as the demand is moderate | High liquidity as there is high demand |
| Risks | The risk exposure can be high as the companies are not well-established | The risk exposure can be a bit less than the small-cap but higher than the large-cap | Being well-established companies, the risk profile is comparatively low |
| Volatility | More volatile | Moderate volatility | Less volatile |
| Who should invest? | High-risk tolerant investors | Moderate risk-tolerant investors with long-term investment plans | Conservative investors looking for long-term investment plans |
Importance of market capitalisation
In your investment portfolio, market caps play a crucial role. Usually, the stock market is affected by several external factors. When small-cap or mid-cap stocks are doing well, the large-cap might fall or vice versa. To avoid market fluctuations, it is ideal for diversifying your portfolio by investing across market caps. You can use Tickertape Stock Screener to analyse the performance of each stock according to its market capitalisation.
Overall, ensure that you consider your investment goal, time and risk appetite before investing in any stock.
FAQs
1. What are large-cap, mid-cap and small-cap?
Stocks in the stock market are categorised according to their market capitalisation. The three market cap categories are large-cap, mid-cap and small-cap.
2. What is the formula to calculate the market cap of a company?
The formula to calculate a company’s market cap is market cap = outstanding shares x price per share.
3. How to find the small-cap stocks?
You can use Tickertape Stock Screener to get the list of small small-cap stocks.
– Log in to Tickertape
– Open the Stock Screener page
– Select “Smallcap” under “Market Cap”
– Add more filters according to your preference
– You’ll get a list of small-cap stocks sorted as per the market cap
4. How to find the best small-cap stocks?
Once you get the list of small-cap stocks, you can filter the best ones based on important parameters. Choose a company with good fundamentals such as good margins, consistent profits, good equity management, low debts, sound management etc.
As an insatiable reader and learner, I’ve spent the last two years exploring the world of finance. With my creative mind and curious spirit, I love making complex finance topics easy and fun for everyone to understand. Join me on my journey as we navigate the world of finance together!
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