What Is Market Capitalization

What Is Market Capitalization

The term market capitalization which is in short called market cap basically means the aggregate valuation of the company on the basis of the current share price in the market

and the total number of outstanding shares. It is calculated by multiplying the current share price by the total number of outstanding shares of the company.

It helps the investor in determining the return and risk in a particular share. It helps the investors in investing in that particular share which meets their risk and diversification criteria.

For e.g.:- If a particular company current market price of each share is Rs 10 and the total number of outstanding shares is 1 million then the market capitalization of such company will be equal to = 1million * 10 = Rs1 crores.

On the basis of market cap, stocks can be divided into 3 categories:-

1) Large Cap Stocks

The stocks with a market capitalization of Rs.10, 000 crores or more comes under large-cap stocks.  These are considered blue chip stocks that are stocks of companies that are large and well established having a larger market share and are considered to be safe investments. The information about such companies is readily available in newspapers and magazines.

Egg of such stocks is – Infosys, TCS, WIPRO etc.

2) Mid Cap Stocks

Stocks of companies with a market cap ranging between Rs. 2 crore and Rs. 10 crores are mid-cap stocks. These are midsized companies and reconsidered relatively more risky than large-cap companies.

E.g. of such stocks are Apollo Tyres, Bank of India, Bata India Ltd. etc.

3) Small Cap Stocks

Stocks of companies with market cap of less than Rs. 2 crores are small-cap companies. These are basically startup companies or those which are in their early stages of development and hence have a smaller client base, the risk is huge and revenue will be lower in the beginning phase.

E.g. of such stocks are- Andhra Bank, ANG Industries Ltd., Amrapali Industries Ltd. etc.