What is market capitalisation - Meaning & Types Explained !

FintechStock48-Abhishek Sarda


 What is market capitalisation? 

Market capitalisation is also known as market cap. It describes the total market value of the total shares held by shareholders of a company. 

Let’s take an example to understand the market cap better. 

XYZ Company has 10,000 outstanding shares in the market, and each share of the company is Rs. 50. The market capitalisation of a company is calculated with the following formula. 

  • Market cap = outstanding shares x price per share
                  = 10,000 x 50 = 5,00,000

Therefore, the market capitalisation of XYZ Company is Rs. 5,00,000.

Types of market capitalisation

In 2017, the Securities and Exchange Board of India (SEBI) established a few regulations to categorise companies according to their market cap. There are three market capitalisation types: 

1. Small-cap

Companies with a market capitalisation of less than Rs. 5,000 cr. are small-cap companies. The rank of these companies starts from 251 on the stock exchanges. Small-cap companies don’t have a long track record. These could be start-ups or businesses in the early stages of development. 

2. Mid-cap 

Companies with a market capitalisation of more than Rs. 5,000 cr. and less than Rs. 20,000 cr. are known as mid-cap companies. On the stock exchanges, these companies are ranked from 101 to 250. In the long-run mid-cap companies have the ability to become large-cap companies. 

3. Large-cap 

Companies with a market capitalisation of more than Rs. 20,000 cr. are known as large-cap companies. On the stock exchanges, these companies are ranked from 1 to 100. These are well-established companies with a prominent market share. The large-cap companies are the ones which have been in the market for a longer time. These companies are actively traded in the market. 

Difference between small-cap, mid-cap and large-cap

Here’s small-cap vs mid-cap vs large-cap as per the important investment aspects 

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AspectsSmall-capMid-capLarge-cap
Market capitalisationLess than Rs. 5,000 cr.Rs. 5,000 cr. to Rs. 20,000 cr.More than Rs. 20,000 cr. 
LiquidityLow liquidity compared to mid-cap and large-capModerate liquidity as the demand is moderateHigh liquidity as there is high demand
RisksThe risk exposure can be high as the companies are not well-established  The risk exposure can be a bit less than the small-cap but higher than the large-capBeing well-established companies, the risk profile is comparatively low
VolatilityMore volatileModerate volatilityLess volatile
Who should invest?High-risk tolerant investors Moderate risk-tolerant investors with long-term investment plansConservative investors looking for long-term investment plans

Importance of market capitalisation 

In your investment portfolio, market caps play a crucial role. Usually, the stock market is affected by several external factors. When small-cap or mid-cap stocks are doing well, the large-cap might fall or vice versa. To avoid market fluctuations, it is ideal for diversifying your portfolio by investing across market caps. 


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