Market caps made simple: Small cap, mid cap, large cap explained

What is market capitalisation?

Market capitalisation, more colloquially called market cap, is the total value of a company’s outstanding shares on the stock market. Here's how you may find out the market capitalization of any company:

Market Cap = Per Unit Share Price x Total Number of Shares

For example, if the present per unit share price is ₹100 and there are 1 crore shares in circulation, the market cap of that firm will be ₹100 crores. This figure isn’t just a number, it represents what investors believe the company is worth today.

Why does market cap matter?

Market cap helps you compare various companies, even if their share prices appear to be significantly different. It helps you understand the size and stability of a company and decide on the risk and return potential it offers. As per SEBI, there are three types of companies based on their market caps:

Types of companies by market caps

• Large‑cap companies: These are companies that are ranked between 1-100 by market capitalisation. They are some of the most stable and liquid segments in the market.
• Mid‑cap companies: Mid-cap companies are ranked 101-250 as per their market cap. They come with a balance of high growth potential and moderate risk.
• Small‑cap companies: These are companies that are ranked 251 and beyond based on their market capitalisation. They represent the highest growth tail and the highest volatility among the equity segment.

Conclusion

Market cap helps you diversify your investments. When you mix your large, mid, and small-cap stocks in your portfolio, you can strike the right balance between safety and long-term growth. It can also signal how likely a company is to withstand tough economic times.

Start by assessing potential investments by checking their market cap first. Use this metric to fine-tune your portfolio, diversify, and align your risk appetite with your financial goals.

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