This is a very factual question, but still, there are some doubts lingering on the minds of the people. The primary reason behind this is that for a long time, there was no precise definition of the large, mid and small cap stocks. For those people, who are not able to understand the basic concept and the difference between the large, mid and small cap stocks, then this post will help you.
The companies that are listed in the stock market or exchange are classified according to their market capitalization. The listed companies are categorized into the large-cap, mid-cap and small-cap companies. Now, a question will crop up in your mind is what is a market capitalization. It is a total valuation of the company, which is essentially calculated by multiplying the total number of outstanding shares of a company with its current share or market price. Market capitalization is also commonly known as the “Cap”.
Market Capitalization = Current Share Price x Number of Outstanding Shares
For instance, a company has 30 million outstanding shares and the current market price of each share is Rs 100. The market capitalization of the company will be 300,00,000 X 100 = Rs 300 crore.
Classification of the Stocks in Terms of Market Capitalization in India
- Large Cap: The stocks with a market cap of Rs 10000 or more.
- Mid-Cap: The stocks with a market cap between Rs 2 crore and 10 crores.
- Small-Cap: The stocks with a market cap of less than Rs 2 crore.
Here’s a difference Between the Large-Cap, Mid-Cap and Small-Cap Stocks
What are Large-Cap Stocks?
These are the stocks of reputed companies that are well-established in the market. The large-cap companies are known for their stability and consistent returns. These types of stocks are considered to be the safest investments. They have a proven business model, which goes on to create a positive sentiment among the investors or shareholders. People looking for the steady return on their investments, particularly for the long-term can consider these stocks.
Examples: Reliance Industries, Hindustan Unilever, Infosys, Tata Consultancy Services, ICICI, ITC, Wipro, among others.
What are Mid-Cap Stocks?
These are those stocks that are considered to be relatively smaller when compared with the large-cap companies in terms of the market capitalization, profits, client base and revenue. Many investors tend to get attracted towards the mid-cap stocks because they have a potential of becoming tomorrow’s success stories and provide good returns to the investors if invested for the long-term. The shared liquidity of these companies is higher when compared with the large-cap stocks. Due to the rise in the price of large caps in recent years, big investors like the mutual funds and Foreign Institutional Investors (FIIS) are opting to invest in the mid-cap stocks.
Examples: Bajaj Capital, Tata Global Beverages, Greaves Cotton, Blue Star Ltd., Bata India Ltd.
What are Small-Cap Stocks?
These are stocks of those companies that are basically in the early stage of development and have low revenue and have a small client base and employees. It is important that an individual must carry out a comprehensive research work before investing in these stocks. They must determine the goodwill, business model, debts, financial strength, etc of the company before investing. These companies have a substantial growth potential but it must also be noted that the risk of failure is higher in the small-cap stocks when compared with the other two stocks. It is suitable for those investors with a high-risk appetite.
Examples: Just dial, India Cements, Havells India, Oriental Bank of Commerce, Pantaloon Retail (India) Ltd., Motherson Sumi Systems Ltd.
What to do Next?
Now that you are aware of the difference between the large, mid and small-cap stocks, now the question arises here what should be your next step as an investor? Well, there is no need to get confused here as taking into the consideration the following points, you can easily invest in the stock market.
- Analyze your short and long-term goals.
- All these three types of stocks have the good potential for providing returns if invested for long-term but make sure you do your homework well.
- Formulate an investment plan and review it regularly.
- If you are a beginner, then taking help of a trusted stock market advisor will prove to be a blessing in disguise.
- Do not invest all your funds in a single stock, make sure to diversify your investment portfolio to balance the risk.
Hope, you like this article. If you have any query please leave in the comment section below.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.