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3 Important Factors That Differentiates Large Cap, Mid Cap, And Small Cap Companies

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3 Important Factors That Differentiates Large Cap, Mid Cap, And Small Cap Companies

You may have heard the words Large Cap, Mid Cap, And Small-Cap on different business channels. In today’s article, I will be explaining to you the difference between Large Cap, Mid Cap, and Small Cap Companies.

Every company has its market capitalization which is calculated by multiplying the price of each share by the total number of outstanding shares of that company. Generally, according to market capitalization, we classify these companies into large-cap companies, mid-cap companies, and large-cap companies. Along with market capitalization, this classification also subjects to a company’s rank in the benchmark indices.

What is a Large-Cap Company?

A company having a market capitalization of more than 20,000 crores can be considered as a large-cap company. For example, Reliance Industries Ltd. is a large-cap company which is having a market capitalization of 1,369,615 crores (As of 2nd July 2021)

  • Risk Involved – These companies contain low risk because of their good financial infrastructure and Investment in large-cap companies is generally considered to be a safe investment as these companies have a wide market recognition. These stocks are a bit expensive as compared to other investment options due to their brand value and reputation.
  • Expected Returns– One can expect moderate returns from the large-cap companies as they have a well-established business and the main source of income is the dividend the Nifty-50 Indices contain all the large-cap companies which are the leaders of their respective sectors.
  • Volatility Parameter – Large Cap companies are less volatile as compared to Mid Cap and Small Cap companies and hence they are considered as a safer investment

What is a Mid-Cap company?

A company having a market capitalization above Rs. 5,000 crore and below 20,000 Crore is called a Mid Cap company. For example, Castrol India Ltd. is a mid-cap company with a market capitalization of 14,406 Cr. (As of 2nd July 2021)

  • Risk Involved– The risk and return entitled with these companies vary in a broad spectrum. For example, the company which is about to enter the Large Cap stocks can provide you with moderate returns because of their financial stability whereas the company which has just entered into Mid Cap stocks from Small Cap stock can give you high returns, but also with high risk associated with it.
  • Expected Returns– One major advantage associated with mid-cap companies is that some companies in this sector have a high potential to enhance their profitability, productivity, and market share.
  • Volatility Parameter-Compared to Small Cap companies, stocks in these sectors have lower exposure to market volatility but, as compared to Large Cap Stocks, Mid Cap companies show higher volatility when there is a sudden panic in the market.

What is a Small-Cap Company?

A company which has a market capitalization below 5000 crores can be called a Small Cap company. For example, these companies are heavily reactive to market volatility. For example, Mazagon Dock Shipbuilders Ltd. Is a small-cap company with a market capitalization of 4,962 cr (As of 2nd July 2021). In India, more than 95% of the companies are considered Small-Cap Companies.

  • Risk involved – Investment in these kinds of companies is considered as a risky investment and can generate higher returns as compared to Mid Cap and Large Cap
  • Expected Returns -Returns associated with Small-Cap investments can be very high. Some of the Small Cap stocks have the potential to turn into Multibagger Stocks that can give you more than 100% returns. Investors can invest in these companies for the long term as well as short term.
  • Volatility Parameter -These kinds of stocks have higher volatility and perform well in an On the other hand, they tend to underperform when the market is in a downtrend.

Generally, many investors tend to invest in these stocks for a longer term to spread the risks associated with them and also to generate substantial returns.

So, if you are willing to invest in the stock market but you are confused about where to invest whether in Large Cap, Mid Cap, or Large Cap then let me tell you a simple solution for this problem. Take investment decisions in any of the above on the basis of your age and the risk you are willing to take.

For example, if you are young, then you can invest a greater portion of your portfolio in Mid Cap and Small Cap Companies but, if you are older in age then you should invest a large percentage of your portfolio in Large Cap Companies and some percentage of your portfolio in Mid Cap Companies but before investing in any company it is important that you should do your own analysis.

So, this was detailed information about the Large Cap, Mid Cap, and Small Cap Stocks. I hope, through this article, I was able to add value to your knowledge. If you are interested in knowing more about the Basics of the Stock Market, then do check out our previous blog of the series, “Best Beginners Guide to The Stock Market || Module No.03|| How to Open a Demat Account.” Also, if you have any doubt regarding this concept then, please post it in the comment section.

4 Comments

    1. Thank you, Sumit, glad that you find the blog helpful. We constantly try to bring helpful blogs for our traders and will continue doing so.

    1. Thank you, Kiran, glad that you find the blog helpful. We constantly try to bring helpful blogs for our traders and will continue doing so.

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