Market capitalization or market cap refers to the total market value of the company. It is derived by multiplying the total number of outstanding company shares and its current market price. This is used to categorise and compare the size of the companies.
Market capitalization = Current market price per share X total number of outstanding company shares.
For instance, the current market price of Company ABC is INR 200, and the total number of outstanding shares is 10,00,000. The market capitalization of Company ABC is -
Market cap = 200 X 10,00,000 = 20,00,00,000
Therefore, the total market value of Company ABC is INR 20 crores.
Classification based on Market Capitalization
1. Large-cap companies: These are well-established companies and have a significant market share. The market cap for large-cap companies is more than INR 20,000 crores. Also, these companies are less risky bets because they are stable, but the returns are comparatively low. Example - Reliance, TCS, Infosys, etc.
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2. Mid-cap companies: These are fast-growing companies that aim for expansion to grow their market share. The market cap for mid-cap companies ranges between INR 5000 crores to 20,000 crores. Also, these companies can be risky bets because they are still not established in their industry, but the returns can be potentially higher. Example - Canara Bank, SAIL, BHEL, etc.
3. Small-cap companies: Most of the companies in India belong to this market cap. These companies have the potential to grow rapidly but may struggle during an economic slowdown. The market cap for small-cap companies ranges below INR 5000 crores. Also, success can skyrocket their share prices, but failure can lead to significant losses to investors. They are considered to be very aggressive bets. Example - CAMS, PVR, Bajaj Electric, etc.
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