What is Market Capitalization!
In today’s post, I will tell you what is market capitalization, what is Large Cap, Mid Cap, Small Cap and what is their importance in the stock market. If you want to know all this then read this post completely.
The total value of any company is called market capitalization.
Eg: Reliance is the largest company in India and the market capitalization of Reliance is Rs 8 lakh crore. This means that whatever business Reliance does, its total business is worth Rs 8 lakh crore.
Before investing in any company, one must know about its market capitalization. Generally, investors feel that if the share price of a company is high, then its market capitalization will also be high. And that company will be big when that’s not true at all.
The share of a large company can also be of low price and a share of a higher price can also be of a smaller company.
For example, today in April 2020, the price of one share of NTPC is Rs 90 and the market capitalization of this company is Rs 86000 crore.
Whereas the price of one share of PAGE INDUSTRIES, another company listed in the share market itself, is Rs 17232 and the market capitalization of this company is 19000 crores. You can see the difference between the share price and market capitalization of both these companies.
Whether the company is small or big, it is not known by looking at its share price, but for that one has to see the market capitalization of the company.
Let us know how the market capitalization of any company is calculated.
To find the market capitalization of a company, the total outstanding share of the company has to be multiplied by the current market price of the share.
Outstanding Shares are those shares that are available for purchase and sale by the general public on the stock exchange. These also include those shares which are held by the promoter or investor of the company.
Market Capitalization Formula = (Total No. of Outstanding Share) X (current share price)
If the Total Outstanding Share of a company is 50 crores and the market price of one share of the company is Rs 200 then (50 * 200) = 10000 crores will be the market capitalization of the company.
Market capitalization is not always fixed, when there is a change in the share price of the company, the market cap is also more or less.
All the companies in the share market are divided into three parts on the basis of their total value.
Large Cap Stock
Mid Cap Stock
Small-Cap Stock
1. Large Cap Stock
Large Cap Share Meaning: Top 100 companies listed on the stock exchange are called large-cap shares. Large-cap stocks are less volatile and less risky. This stock does not rise or fall very suddenly.
Large-cap shares are those whose market capitalization is more than 10000 crores. Any large-cap company is the top company in its business and industry. Generally, all large-cap companies are market leaders.
Large Cap companies are called Too Big To Fail because these companies are so big that they cannot even fail. If these companies fail, it also makes the country’s economy slow down.
2. Mid Cap Stock
Mid Cap Share Meaning: Those companies whose market capitalization is between 2000 crores to 10000 crores, the shares of those companies are called mid-cap shares. Sometimes mid-cap companies grow very fast and become large-cap companies in the future.
From the 101st largest company in India to the 500th number company, it is considered a midcap company. You can earn good profits by investing in these companies for a long time.
3. Small-Cap Stock
Small-Cap Share Meaning: The market capitalization of small-cap companies is less than 2000 crores. The small-cap company gives higher returns than any other company but it is more volatile and risky as compared to other companies.
One should not invest in any company just by looking at the market capitalization. Rather, after doing a complete fundamental and technical analysis of the company, invest in it.
