What is Market Capitalisation and how to classify all the listed companies based on it?

What is Market Capitalisation and how to classify all the listed companies based on it?
If you are just beginning in the market and have heard some jargons like Large cap, Mid cap, Small cap and market capitalization (M-cap) and get confused, then the concept of Market Capitalization is very important for you to understand. I will try to keep it short and crisp… :)
In this Article, we will understand a very important parameter used to classify all listed companies in any market be it India, USA, China, Japan and so on. That parameter is Market Capitalisation. Let's look at what it means and how it simplifies our understanding of various concepts such as risk associated with a stock. Understanding M-cap is mandatory for you to get what these Mutual Funds, DIIs, FPIs are talking about...
Market Capitalization: 
Let us take an example. Suppose a company X needs 100 crores capital to start a business and it decides to raise money by issuing shares. Let us assume, it decides to issue 1 crore shares of 100/- each. The market capitalization is nothing but the number of shares multiplied by the price of each share which comes out to be 100 crores in this case.

Suppose all the shares of company X are now issued and starts trading on exchanges and due to bright prospects of the business, the share price touches 120/- in the market. The total M-cap of the company then becomes = 120 crores (1 crore shares × Price of share which is 120). 

M-cap is nothing but total market value of all shares outstanding. 
How to classify all companies based on the M-cap Parameter?
SEBI in its circular no. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated 6th October 2017, has defined the companies based on their M-cap. You just have to do the following points to get it simply:
  • Get a list of all the companies listed in Indian Market,
  • Arrange them in decreasing order of M-cap,
  • Now you are done :)
The first 100 companies in terms of M-cap are Large Cap Companies, the next 101-250th in the list are Mid Cap Companies and the companies starting from 251st onwards are Small Cap companies. Here is a ready list for you made by AMFI of companies listed till 31st December 2019 (Click Here). The list has a total of 4992 companies. 
A brief on each category. 
  • Large Cap companies - These are the ones with the highest M-cap and have been in existence for so many years. They have faced numerous challenges since their birth and successfully made it to the top of the list. 
  • Mid cap companies - they are in the process of expanding and carry inherently higher risk than large cap, but they are attractive for their growth potential. 
  • Small cap companies - you can compare them to an infant, in nascent stage and carry the highest amount of risk compared to above two categories. However, they are also attractive for their growth potential. As the saying goes, every large cap was once a small cap. For instance, TVS Motors was once a small cap and currently placed in the Mid cap category. 
In the next series of Articles, I will share with you the sources you need to start with your journey in the markets, how to select a stock, investing principles and much more….
Do let me know your queries in the comments section. I will be happy to help. 
Till then, Happy Investing & Happy Learning…. Jai Hind!!




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