As soon as they enter the stock market, investors come across terms like large-cap, mid-cap and small-cap. It is often challenging for new investors to understand what is the difference between these categories. In simple words, market capitalization i.e. 'Market Cap' decides how big or small a company is in the market.
The method of calculating market cap is very simple. The total number of shares of the company is multiplied by the current share price. According to the rules of Securities and Exchange Board of India (SEBI) and Association of Mutual Funds in India (AMFI) in the Indian stock market, companies are divided into three major parts on the basis of their market cap.
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What is large-cap?
The top 100 companies of the country in terms of market cap come under this category. Their market cap is usually Rs 20,000 crore or more. These are the oldest, largest and financially strong companies of the country. There is very little risk in these. They remain strong even in market downturn. These companies also pay regular dividends.
The largest company in this is Reliance Industries whose market cap is about Rs 19.8 lakh crore. After this comes Tata Consultancy Services (TCS) whose cap is around Rs 13.9 lakh crore. HDFC Bank has Rs 11.6 lakh crore.
What is mid-cap?
These companies come from 101st to 250th position. Their market cap ranges between Rs 5,000 crore to Rs 20,000 crore. These companies are in the growth phase and have the potential to become large-caps. They have the potential to give higher returns compared to large-caps. However, the risk and volatility also remain slightly higher. Polycab India has a cap of Rs 95,000 crore. Whereas Mphasis Ltd has a cap of Rs 45,000 crore and Bata India has a cap of Rs 17,000 crore.
small-cap company
All companies below the 251st position fall in the small-cap category. Their market cap is less than Rs 5,000 crore. These are early stage or companies working in small sectors. In these, there is a chance of getting 'multibagger' i.e. manifold returns. The market recession has the first and deepest impact on these companies. Indiabulls real estate is worth Rs 4,200 crore. While CEAT Limited is worth Rs 4,800 crore and Hathway Cable & Datacom is worth Rs 3,500 crore.
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No single investment formula applies to everyone. The right choice depends on your age, how much risk one can take and the investment horizon. According to the market, instead of investing all the money in one place, it is wise to create the right balance of all three in the portfolio.