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One size doesn't fit all - Large cap, mid cap and small cap stocks
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In the financial press and on business TV channels, we often hear terms
like market capitalization (market cap), and also references to companies
as large cap, mid cap or small cap.
Let’s understand what these terms mean, and what each class of stocks has to offer you. |
Market Capitalization or Market Cap
It is the value of a company as determined by the stock markets.
Each company issues shares, and the total number of issued shares represents 100% ownership interest in the company. Thus, if we know the number of issued shares for a company, and the price for each share, we can derive the value of the entire company.
The value of a company determined in this manner is called its Market Cap.
Market Capitalization of a company =
Market price of its shares * Number of shares issued
The price of a stock determined in a free market, where it is determined by market forces of demand and supply, is the most accurate price which is democratically arrived at. Since market cap calculation uses this price, the market cap of a company is the best measure to gauge the size of a company.
Companies traded in the stock market are classified based on their market cap, as each class demonstrates distinct shared traits. Let’s look at the classification of companies based on their market cap.
Large Cap
There is no standard definition of Large Cap, and it varies from institution to institution. But as a general rule, if a company has a market capitalization of more than Rs. 5000 Crores, it is considered as a Large Cap.
A Large Cap company is normally a dominating player in its industry, and has a stable growth rate.
It should be noted that almost all the Large Cap companies from India would be considered as Mid Cap or Small Cap companies in a global scenario, as globally, companies are usually classified as Large Cap if their market cap is more than $10 Billion (roughly Rs. 39,000 Crores).
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Note: Please treat the opinion expressed here as a broad suggestion. Please consult your financial planner / investment advisor before making any investment decision.
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Similarly the benefit of no entry load for MF(online) has tobe extended for Insurance also.This will benefit the poor class people.