Investing made easy: Market Capitalization in Stock market- Large cap, Mid cap, Small cap

Market Capitalization of any company can be defined as the market value of all outstanding shares of that specific company. By multiplying the outstanding shares of the company with the market price of each share we can get the value.

The companies use market capitalization to show the size of a company. It is important because company size is a basic element of various characteristics in which investors are interested, including risk. It is easy to calculate.

Market Capitalization= Current Stock Price x Number of outstanding shares

What is Large-cap, Mid-cap & Small-cap, ?

Large-cap refers to a company with a market capitalization value of more than Rs.20,000 crores is recognized as Large-cap companies. Large-cap is a reduced version of the term large market capitalization.

Examples :

Axis Bank, SBI, Bharti Airtel, Coal India, HDFC Bank, Hero Motocorp, Infosys, ITC, ICICI Bank, Maruti Suzuki, Kotak Mahindra, M&M and Reliance.

Mid-cap company is a company with a market capitalization above Rs.5000 crores and less than Rs.20000 crores are viewed as a midcap company.

Examples :

Allahabad Bank, CRISIL, Apollo Hospital, Blue Dart, GE T&D India.

Small-cap is a term used to distinguish companies with relatively small market capitalization. A company’s market capitalization is the market value of its outstanding shares. In India, normally a company below market capitalization of Rs.5000 crores is classified as a small-cap company.

Bombay Dyeing, Career Point, Eros Intl, D-Link India, Everest Ind, Gati, Fineotex Chem, Godawari Power, Indraprastha Gas.

What is the Difference between Large Cap, Mid-cap, and Small-cap Stocks?

Risk factor

1) Large-cap companies have a more substantial reputation and financials in the stock market. They have a significant market share and consistent performance, which makes them less risky than mid and small-cap stocks

2) The involvement of risk in mid-cap companies is relatively higher because several investors invest in growing companies, leading to higher volatility in returns.

3) Small-cap companies have increased risk because there are higher fluctuations in prices, which increases the risk for investors.

Growth Prospects

1) Large-cap companies have lower growth potential than mid and small-cap companies. This is because investors think of large-cap companies as a stable investment. After all, their high market capitalization has low chances of growth.

2) Mid-cap companies are best suitable for investors because they deliver high potential growth. If an investor is looking for slightly higher growth, mid-cap companies are an excellent option for investing.

3) Small-cap companies have the highest growth potential than mid and large-cap companies. They have lower share prices, and smaller size leaves space for these companies to become bigger in the future.

Stock Liquidity

1) The large-cap companies have high liquidity because the large-cap stocks are traded actively on the stock exchanges of India. As large-cap stocks are known as leaders of the market, they are familiar to the investors, increasing their liquidity in the stock market.

2) The liquidity of mid-cap companies is generally lower because they have lower demand in the market due to risk.

3) Small-cap companies have the lowest liquidity than mid and large-cap companies. They have low trading volumes generally very low in low cap stocks.

To build a portfolio with a proper mix of small-cap, midcap, and large-cap stocks, you'll need to evaluate your financial goals, risk tolerance, and time horizon.

A diversified portfolio that contains a variety of market caps may help reduce investment risk in any one area and support the pursuit of your long-term financial goals.