Small Cap, Mid Cap & Large Cap

-By Ishank Ravi | TheLearnEarn | 14/06/2019



You must have heard of the term Mid Cap Small Cap and Large Cap shares in your life, But Do you really know what these terms refer to and how can they change your whole investment strategy And ignoring them could be the biggest mistake you can ever make. Stock market is broadly classified under three major categories Small Cap, Mid Cap and Large Cap. However there are no proper guidelines in this regards but still we have a few basic characteristics which will helps us identifying them.

In general market Cap means Capitalization, where Capitalization represents the aggregate valuation of the company as well as the size of the company. But before we start let first understand the how is this market cap calculated. We can calculate the market capitalization of a company by multiplying market price of 1 share X number of outstanding shares.

To understand this more clearly let’s take the help of an example:-
Let’s assume ABC Ltd. Is company and the price of one share of ABC Ltd. Is Rs.1000 and the company has 100000 outstanding shares.

Market Capitalization = Market price of 1 share X no of outstanding shares
                                   = 1000 X 100000
                                   = Rs.10,00,00,000

So, now when we are able of calculating the Market Capitalization of a company let’s move towards the three major category which we discussed in the beginning of the blog. (Small cap, Mid cap and Large cap)

What is Small Cap?

Financial markets have classified Small cap companies as those companies whose market cap is less than Rs.13000 Cr. Small cap companies are generally in there early stages and mostly start-ups or developing businesses. These companies are risky to bet upon and mainly small investors are advised to stay away from investing in these companies. Shares of small cap companies are generally having high BETA/ or highly Volatile in nature. Small Cap have High Growth rate at the same time High failure rate which makes it a risky investment. 

Few examples of small cap companies are-Talwalkars Fitness, Lakashmi Vilas Bank, Adani Trans, INOX Leisure, Can Fin Homes, Ujjivan Finance, Federal Bank, PNC Infra, SRF, Mahindra Holidays, Dr. Lal PathLab.

What is Mid Cap?

Talking about mid cap shares the financial market have classified mid cap as those companies whose market cap is between 13000 Cr. to 75000 Cr. Mid cap companies are companies with fairly developed business model and report a decent profit  which makes these companies  most suitable investment option for young investors. Mid Cap companies generally tend to be less risky as compared to Small Cap companies. Retail investors with a time horizon of 3-5 years must keep a decent amount of mid cap companies in their portfolio.

Few examples of mid cap companies are- Adani Power Ltd., Adani Green Ltd., Amara Raja batteries Ltd., Balkrishna Industries Ltd., Castrol India, Cholamandalam Financial Holdings Ltd., Cochin Shipyard Ltd.

What is Large Cap?

A large Cap company represent fully developed well organised and massive companies with a huge turnover and generally enjoys the brand value in market. Usually companies with market cap of Rs. 75000 Cr. and above are considered as large cap companies. Investment in large cap equity is considered least risky as compared to other investment options. Investor with expectation of earning a decent return from his/her investment should definitely place some large cap companies for regular return.

Few examples of large cap companies are- TCS, HDFC Bank, Reliance, Infosys, Larsen&Tubro (L&T), Wipro, Maruti Suzuki, HUL, ITC, HCL Tech, ONGC, Asian Paints, SBI, Nestle, Asian Paints, Mahindra&Mahindra(M&M).

Now I hope your query must have been solved with clarityand now you can make your investment decisions smartly wisely. And if you haveany query do write it in the comment section below and you can also refer to myprevious blogs as well.