We all know that there are different categories of stocks like large caps, mid caps, small caps and micro caps. When you analyze a company, we should be clear on which category the stock falls. This is highly important as the risk associated with a stock mainly depends on which category it belongs to. Normally large caps are low return, low risk stocks as the growth rate would be minimal but consistent. Small caps and micro caps are high return, high risk stocks as they can deliver high growth or a total collapse.

Stock price may misrepresent a company's actual worth. If we compared the two companies by simply looking at their stock prices only, we would not be comparing their true values, which are affected by the number of outstanding shares each company has. Say for example, the stock price of Maruthi Suzuki is Rs. 3946 and that of ITC is Rs.324 That does not mean that Maruthi Suzuki more valued than ITC. Infact, ITC is almost double in market value compared to Maruthi Suzuki

What is Market Capitalization and how it is calculated
Market capitalization is the total market value of the shares outstanding of a publicly traded company. it is equal to the multiplied value of share price and the number of shares outstanding. For example, consider company A has 1000 shares and the stock price is Rs.20. Here the Market Capitalization is the company is 1000*20 = Rs.2000

Market Capitalization Formula 
MC = N \P, where MC is the market capitalization, N is the number of shares outstanding, and P is the current price per share.

Different Types of Market Capitalization in Indian Scenario
Below the widely accepted standards for each Market Capitalization

What are Large Cap Stocks in Indian Market
BSE-Sensex/BSE-100/Nifty 50/Nifty next 50 Indexes are reference points for large cap stocks. Market capitalisation for stocks in the BSE-100 Index, for instance, ranges from Rs 200 bn to Rs 4300 bn. These are stocks of usually large and well-established companies that have a strong market presence for a long time and are generally considered as safe investments. Eg: TCs, Infosys, State Bank of India.

What are Mid Cap Stocks in Indian Market
Mid caps companies lie between large cap stocks and small cap stocks. Mid cap stocks generally have a market capitalisation within the range of Rs 50 bn and Rs 200 bn. These represent mid-sized companies that are relatively more risky than large cap as investment options yet, they are not considered as risky as small cap companies. Nifty Midcap 100 Index can be considered as reference points for mid cap stocks. Eg: Apollo Hospital, Britannia, MRF.

What are Small Cap Stocks in Indian Market
Small cap stocks generally have a market capitalisation within the range of Rs 1 bn and Rs 50 bn. These represent small-sized companies that are relatively more risky than mid cap as investment options. But there can be true multibaggers in this segment as well. Investors have to carefully study before investing in these stocks. Nifty Smallcap 100 Index can be considered as reference points for small cap stocks. Eg: Aban Offshore, Bajaj Hind, Ceat.

What are Micro Cap Stocks in Indian Market
Micro cap stocks generally have a market capitalisation below of Rs 1 bn. These represent very small-sized companies that carry high risk reward ratio. Investors have to carefully study before investing in these stocks. Micro caps and Small caps can be real wealth creators. For example Havells India Ltd was trading at Rs 7 in 2003. In 2013 the stock was trading at Rs. 665. So in just 10 years, the stock has given a return of 8915%!!!

Top 10 Indian Companies by Market Capitalization

* 1 Billion = 100 Crores

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for Rs100.

The villagers started catching the monkeys.

The man bought thousands of monkeys at Rs100 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at Rs200. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to Rs250 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at Rs500! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at Rs350 and when the man returns from the city, you can sell it to him for Rs500."

The villagers squeezed up with all their savings and bought all the monkeys.

Then they never saw the man nor his assistant, only monkeys everywhere!!!

Welcome to the "Stock" Market !!!!

 

Credits - SFM Praveen ( CA Final SFM Faculty)