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If you are a beginner who is just venturing into the securities market, you may have come across jargons like large-cap stock, blue-chip stock, small-cap stocks, etc. Market cap or market capitalisation is one of the broader categories to classify companies in the securities market. An understanding of market capitalization may help you make an informed investment choice weighing the growth potential and risk appetite.
If you have no clue about what market capitalisation is you are at the right place. Read along to know about market capitalisation and its types.
Key Takeaways
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Large-Cap Stocks are the most stable (least volatile) and highly liquid, making them suitable for risk-averse investors.
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Mid-Cap Stocks strike a balance with moderate volatility and liquidity, appealing to investors who can accept moderate risk.
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Small-Cap Stocks are characterized by high volatility and lower liquidity, which makes them suitable for aggressive, long-term investors .
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In addition to market capitalization, investors must also check a company's debt, fundamentals, and overall financial strength.
What is Market Capitalisation?
Market capitalisation, often termed as market-cap is the market value of the outstanding shares of a company.
Market Cap = Total number of outstanding shares × Market Price of each share
Let us look at an example to understand better.
Let ‘ABC’ be a listed company with 50,000 shares, each trading at a market price of ₹900.
The market cap of ‘ABC’ is 50,000 × ₹900= ₹4,50,00,000 (OR 4.5 Crores)
Also Read: What is Market Capitalisation?
Types of Market Capitalisation
When you consider the types of market capitalisation, businesses are categorised into three basic buckets in terms of market value. These are:
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Large-cap: Companies that fall among the top 100 listed firms by market capitalisation, as classified by SEBI. These are typically valued at ₹20,000 crore or more and are considered relatively stable, established market leaders.
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Mid-cap: Companies ranked 101 to 250 by market capitalisation, as per SEBI classification. They are generally valued between ₹5,000 crore and ₹20,000 crore, offering a balance between growth potential and risk.
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Small-cap: Companies ranked 251 and beyond by market capitalisation, under SEBI’s market-cap framework. These businesses usually have a valuation of below ₹5,000 crore and tend to offer higher growth potential, but with greater volatility and risk.
What Are Large-Cap Stocks?
Large cap stocks belong to companies that have been around for decades, built strong reputations, and hold a sizeable share of the market. These businesses usually have a market cap of ₹20,000 crore or more and are known for their stability, even when economic conditions turn rough.
Since they are less volatile than mid-cap or small-cap companies, large cap stocks appeal to investors who prefer steady growth with lower risk. While returns may not rise as sharply as those of smaller companies, the consistency and resilience they offer make them reliable long-term options.
Examples of Large-Cap Stocks
Infosys and Tata Consultancy Services are widely recognised as strong large-cap companies in India. Their steady performance, reputation, and reliable growth story make them appealing picks for long-term investors.
Advantages and Risks of Investing in Large-Cap Companies
Advantages:
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Large-cap companies can be safer with lower volatility as these businesses are already established with a high presence, a long history of operating, and a stable financial base.
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Because they do not change so drastically compared to smaller businesses, they attract risk-averse investors who want to secure their investments and remain invested at the same time.
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Their stocks are highly traded, and this means that investors have the opportunity to get in or out of a position without a significant price oscillation to interfere with the process.
Risks:
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One of the main weaknesses is that large companies tend to expand relatively slower than small or mid-sized corporations, which restricts the possibility of building wealth quickly.
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Even large-cap markets can be impacted by broader market crunches or new policies, which can affect overall returns.
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The sheer scale of large-cap companies often leads to organisational inertia, making rapid, comprehensive shifts in strategy, operations, or product lines challenging. So, it can be difficult for them to adapt to any sudden changes in the market or new entrants.
For instance, A major global automaker (large-cap) may take years to retool its factories and supply chain to match a sudden, dramatic shift in consumer demand toward electric vehicles, giving nimble EV startups a temporary advantage.
Despite these shortcomings, the large cap stocks have stayed popular among long-term investors who seek stability and predictability with moderate returns.
What Are Mid-Cap Stocks?
Mid-cap companies sit between the giants of the market and the smaller emerging players. Their market value lies in the range of ₹5,000 crore and ₹20,000 crore. They often show more price movement than large, established companies, which means they can feel slightly riskier for some investors.
However, this same movement is what makes them appealing. Many of these businesses are in their expansion phase, working toward becoming tomorrow’s large firms. Because of this growth stage, mid-cap stocks hold the potential to deliver stronger returns over time, attracting investors who want a balance between stability and higher long-term opportunities.
Examples of Mid-Cap Stocks
Mid cap stocks such as Metropolis Healthcare, LIC Housing Finance, and Castrol India are well-known mid-cap companies traded on Indian stock exchanges.
Advantages and Risks of Investing in Mid-Cap Stocks
Advantages:
Mid-cap companies often strike a rare balance between stability and growth, appealing to investors seeking opportunities beyond large caps without taking extreme risks.
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These businesses have usually crossed their early volatile phase but still hold enough room to scale, giving them stronger growth potential than large caps.
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A major strength of mid-caps lies in their ability to adapt, evolve, and expand within their industries, opening the door to meaningful capital appreciation over time.
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Their agility allows them to respond faster to sector trends, technological shifts and market transitions, which makes mid-cap investment attractive for investors seeking emerging leaders.
Risks:
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Mid-caps are not as volatile as small caps but experience some significant price fluctuations in economic stress or in larger market corrections.
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Most of the mid-cap firms do not have the financial buffer or diversified revenue streams like larger firms. This can make them susceptible during crises.
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Because trading volumes of mid-cap stocks are lower than in large-cap stocks, investors can easily enter or exit positions during periods of high volatility.
What Are Small-Cap Stocks?
Small-cap companies are companies that are usually young or growing and have a market value of less than ₹5,000 crore. These companies are smaller scale in and have high levels of uncertainty, even though they have significant growth potential.
They are more vulnerable to market fluctuations due to their size, hence they experience notable fluctuations in their share price.
Many of these companies have struggled during prolonged downturns historically. Yet, they emerge as one of the strongest performers when the economy recovers, because of its ability to scale quickly.
Examples of Small-Cap Stocks
Companies such as Cupid Limited, Force Motors, Apollo Micro Systems, Hawkins Cookers, Shobha Ltd., and VST Industries represent well-known small-cap names actively traded on Indian stock exchanges.
Advantages and Risks of Investing in Small Caps
Advantages:
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Small-cap companies often attract investors who look for early-stage growth opportunities, as their smaller size allows them to scale quickly when conditions are favourable.
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These firms can expand into new markets faster than larger competitors, which may lead to stronger returns for those comfortable with dynamic environments.
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Innovation tends to flourish in this segment, giving investors a chance to back potential future industry leaders as part of a diversified small cap investment strategy.
Risks
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Small caps react more sharply to market volatility, economic slowdowns, and sector-specific shifts, making them a riskier segment for conservative investors.
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They may have fewer financial cushions to help them sail through recessionary business cycles, thereby exposing them to extended periods of decline.
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The liquidity is not that high; it usually becomes difficult to purchase or sell at the desirable price levels, particularly at high volatility times.
Small-cap firms can provide spectacular returns in the long run. However, they must be evaluated thoroughly and closely monitored.
Differences Between Large-Cap, Mid-Cap, And Small-Cap
|
Parameters |
Large-cap |
Mid-cap |
Small-cap |
|
SEBI Definition (Listed companies in terms of full market capitalization) |
Top 100 companies in stock market |
Companies ranked 101–250 |
Companies with ranking 251 onwards |
|
Market Cap |
≥ ₹20,000 crore |
₹5,000 – ₹20,000 crore |
< ₹5,000 crore |
|
Risk Profile |
Low |
Moderate |
High |
|
Volatility |
Less volatile |
Moderate |
Highly volatile |
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Liquidity |
High |
Moderate |
Low |
|
Growth Potential and Returns |
Steady and stable returns |
Moderate growth and returns |
Considered to be high growth with strong return potential |
Note:
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Blue-chip companies: Blue-chip companies are typically the most established and financially sound subset of the Large-cap category. While all blue-chip companies are large-caps, not all large-cap companies are necessarily blue-chips.
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Free-float Market-cap: The market value of the outstanding shares that are meant for trading by the public is called free-float market capitalization. Locked-in stocks are excluded in calculating the free-float market cap.
Conclusion
Market cap has become one of the most widely used methods for evaluating companies worldwide. It is also a reliable method for weighing the shares of different companies that make up an index in the share market. But, as an investor, you should also be aware that the market cap does not cover financial debt and other liabilities of the company. It only helps in determining the risk profile and growth potential of a company. This helps investors in making an informed choice.
Always make sure you understand the value of a company in terms of market cap as well as other factors before making an investment decision.
