What Is Market Capitalisation?
Market capitalisation, commonly called "market cap," is the total market value of a company's outstanding shares. It is calculated by multiplying the current share price by the total number of shares issued by the company.
Market Cap = Share Price × Total Outstanding Shares
For example, if a company has 10 crore shares and the share price is Rs 500, its market cap is Rs 5,000 crore.
Why Does Market Cap Matter?
Market cap tells you how the overall market values a company, not just what one share is worth. It gives you a more meaningful comparison than share price alone. A company with a Rs 50 share might be worth more overall than one with a Rs 5,000 share, depending on how many shares are outstanding.
Investors use market cap to categorise stocks by size, which helps in portfolio construction and risk assessment.
Categories Based on Market Cap in India
Large Cap (Top 100 companies)
Companies with a market cap above Rs 20,000 crore. These are well-established, financially strong companies with a long track record. Examples include Reliance Industries, HDFC Bank, and Infosys. They are more stable but may grow more slowly.
Mid Cap (101st to 250th companies)
Companies with a market cap between Rs 5,000 crore and Rs 20,000 crore. These have higher growth potential than large caps but come with more volatility. Examples include companies like Voltas, Persistent Systems, or Alkem Laboratories.
Small Cap (251st company onwards)
Companies with a market cap below Rs 5,000 crore. These are often emerging businesses with high growth potential but also carry the highest risk due to lower liquidity and less stable financials.
How to Use Market Cap in Investing
- For stability: Allocate more to large caps if you prefer lower risk.
- For growth: Include mid and small caps for higher return potential, with appropriate risk tolerance.
- For diversification: A balanced portfolio often has a mix across all three cap categories.
Market Cap vs. Stock Price: A Key Distinction
A stock with a high price is not necessarily a large company. And a cheap stock is not necessarily a small company. Market cap is the complete picture. Always compare market caps, not just prices, when evaluating companies.
Does Market Cap Change?
Yes, constantly. Since share prices change throughout the trading day, market cap fluctuates as well. A company can move from mid cap to large cap (or vice versa) as its business grows or contracts.
Key Takeaway
Market capitalisation is one of the most useful metrics for categorising and comparing companies. It helps you understand the risk and growth profile of different stocks and build a well-balanced portfolio. Use the Lemonn app to filter stocks by market cap and discover investment opportunities across all segments.
