Explained: Role of small, mid and large cap companies in stock markets

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All the listed stocks in the stock market are divided into various categories based on each one’s market capitalisation. These categories are known as large-cap, mid-cap, and small-cap stocks. This helps an investor to make better decisions about making the optimum use of their funds in the stock market. To understand the categorisation of stocks further, you need to first understand the term market capitalisation itself.

The total market value of a company basis the outstanding shares is known as its market cap. Consider an example: A total of 50,000 shares of XYZ company are listed on the stock market. The current price of each share is Rs 50. So, what is the company’s overall market cap?

Market Cap (for XYZ company) = total shares x market price of single share = 50,000 shares x 50

This means the market cap of the company is Rs 25 lakhs.

Large-cap stocks

The top 100 companies in the stock market are known as large-cap companies due to their profitable record and high amount of trust from top investors. The most reputed and well-established companies form the large-cap in the stock market. On average, their market cap is above Rs 20,000 crore. These companies are expected to handle the waves and tides in a steady fashion. Owing to their massive experience in the trade, investors hold them in high regard. Reliance Industries, Larsen & Toubro, Tata Industries are a few of the most prominent names in the large-cap sector.

Mid-cap stocks

The companies ranking from 101st to 200th are called mid-cap companies and have a market capitalization of Rs 5 – 20,000 crores. In comparison to large-cap stocks, these are slightly riskier due to constant volatility. Ashok Leyland, Bajaj Electricals, and Castrol India are prime examples of mid-cap companies. They provide good returns in the long run.

Small-cap stocks

All the companies that are ranked beyond 250 are included under small-cap stocks and have a market cap of less than Rs 5,000 crores. Companies like NESCO Ltd, Delta Corp, and Indian Energy Exchange are examples of such stocks. They are risky but can generate good returns in the long run. However, the extremely volatile nature of these stocks often backfires and causes investors to be extra cautious.

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