What Is Market Capitalization ?

If you are new to the stock market then you must have heard the term Market Capitalization many times – which is also commonly known as Market Cap. This is an important data to be seen before investing or trading in any company, which affects the decision of every investor. So today in this post we will know what is Market Cap, how is it calculated and why is it so important?.

What is market cap?

Market cap simply means the total market value. Which is calculated by multiplying the number of total outstanding shares issued by that company by the current running Actual Share Price. This shows the size of the company, with the help of which the investor is able to estimate the future potential and invest keeping in mind the risk and reward.

For example: If at present the price of 1 share of Reliance is ₹ 200 and a total of 10,000 shares are issued by Reliance, then the total market cap of Reliance will be = ₹ 20 lakh (₹ 200 × 10,000)

How is market cap calculated?

It has a simple formula – [Market Capitalization = Current Share Price x Total Outstanding Shares]

[Market Capitalization = Current Share Price x Total Shares Issued by the Company]

Current Share Price – The running price of any company during the open market (9:15 am to 3:30 pm) is called current share price. It keeps on changing on the basis of demand-supply, company growth, financial data and many other factors.

Outstanding Shares – Outstanding Shares means the total authorized shares issued by the company which are available with all types of investors, promoters, officers, employees. This does not include Treasury Shares which have been boughtback by the company.

Top 10 High Market Cap Companies in India

Table of Contents

1. Reliance Industries
2. Tata Consultancy Services (TCS)
3. HDFC Bank
5. Hindustan Unilever (HUL)
6. Housing Development Finance Corporation Limited (HDFC)
7. ICICI Bank
8. Bajaj Finance
9. State Bank of India (SBI)
10. Bharti Airtel

What are the types of market cap?

To compare any company, Market Capitalization has been divided into total 3 parts –

COMPANY MARKET CAP

Large Cap Above ₹20,000 Cr
Mid Cap ₹5,000 Cr to ₹20,000 Cr
Small Cap Less than ₹5,000 Crore

1. Large Cap

Under large cap companies, those companies are included whose total market capitalization is more than ₹ 20,000 crores. Where are they usually known as Blue Chip Stocks, which have been performing very well in the stock market for the last one or two decades and provide consistent returns to the investors.

Such companies remain stable even in times of recession and maintain themselves in profit. Presently more than 180 companies are listed in Indian stock market as Large Market Cap Company. For example, in Nifty 50 companies, all the companies come in large cap only.

2. Mid Cap

The market cap of these companies ranges between ₹ 5000 crores to ₹ 20000 crores.

It is a bit risky to invest in these companies as compared to Large Cap due to higher volatility.

But talking about the other side of the coin, these companies are considered to be Near Leader and seeing the future potential, there are more chances of high growth in long-run and becoming a large cap company.

Companies like LIC Housing Finance and Castrol India are an example of this.

3. Small Cap

In the stock market, 80% to 90% of the total listed companies are Small Cap Companies, whose market cap is less than Rs 5000 crores. Due to being small in size, their growth potential is also high, due to which most of the retail investors invest in it.

But the truth is that due to the small market cap, there is a lot of volatility and risk in it, due to which it is not able to keep itself stable in the negative market and goes down.

Why is market capitalization important?

Market cap shows the actual size of any company, so that investors can compare the two companies to find out the Risk Taking Ability and take the right investment decision. Along with this, market cap has a direct connection with the company’s growth, future prospects and returns, i.e. higher market cap = better growth prospects.

It has been seen in most of the cases that large cap companies give a stable return with less risk.

While small cap companies have high risk but no return can be predicted.

Conclusion

In this post we have learned what is market cap and how important is it.

Along with this, we have also talked about many other important facts.

You can tell us in the Comment Box below how helpful you found this post. Plus how the market cap is influencing your investment decisions.