Market Cap: Definition, Types and Importance of Market Cap for Stock Traders

The Market cap (market capitalization) is one way of determining the size of a firm.  Market cap is the entire value of all of the company’s shares of stock that are currently in circulation, which includes both publicly traded shares and restricted shares that are owned by corporate officials and other insiders. 

The size of a firm’s market value may also serve as an approximate indicator of the stability of the company. Firms with a large market capitalization are often less sensitive to the ups and downs of the market than companies with a mid-capitalization, which in turn are typically less prone to volatility than companies with a small market capitalization. 

This is due, in part, to the fact that bigger organisations often have more financial reserves than smaller ones, and as a result, they are typically able to more readily absorb losses and swiftly recover from a poor year.

On the other hand, during periods of economic expansion, it’s possible that smaller businesses have a stronger capacity for experiencing rapid expansion than their bigger counterparts. Because of this, some people who are interested in dividends may use the market valuation of a company as a filter when searching for businesses that pay reliable dividends. 

What is Market Cap?

The market capitalisation of the company is the entire value of a publicly listed firm as determined by the value of all of its stocks in relation to the whole stock market. The term “market cap” is used to refer to market capitalization. 

The market capitalization of a corporation takes into account just its market worth and not its debts or liabilities. The market capitalization of a business is a valuable metric for evaluating its size, which tell an investor a great deal about the potential of a firm. 

The majority of investors choose to increase their portfolio’s level of diversification by purchasing stocks issued by large-cap, mid-cap, and small-cap businesses. This gives investors the opportunity to take some risks while also providing them with equities that are reliable even if they provide poor returns.

How does Market Cap work?

Market cap works by giving investors a scale to gauge the size of the company. The worth of a stock can frequently be determined by looking at its market capitalisation. It is a precise method that may be used to suggest the risks that are associated with a firm. Additionally, it is used to weigh the stocks of various companies for stock market indexes, with stocks of companies with bigger market capitalization being weighted more heavily.

This strategy is helpful for comparison because it enables investors to comprehend the magnitude of the potential rewards and losses associated with investing in other companies. It is essential for investors to keep a diversified portfolio, which may contain both safe investments in well-established businesses and riskier investments in startups.

Why is Market Cap Important for Stock Traders?

A high market cap is generally considered to indicate a more valuable and less risky company. This is because larger companies with high market caps tend to have a more established presence in their industry, more resources available to weather market downturns, and a more diverse range of revenue streams. Smaller companies with lower market caps may be more vulnerable to market volatility and may have less financial stability.

Investors often use market cap as a factor in deciding whether to invest in a particular stock, especially when considering the potential risks and rewards of different investment opportunities. For example, a large-cap company may be seen as a safer investment with less potential for high returns, while a small-cap company may be seen as a riskier investment with potentially higher rewards.

The market capitalization of a company is an important metric for stock traders to pay attention to because it serves as a measurement of the size of the firm and has the potential to influence the trading volume and liquidity of the stock. Companies that have a bigger market capitalization are typically more well-established and financially secure. Additionally, the stocks of these companies are likely to be more liquid and easier to trade.

On the other hand, the stocks of smaller companies that have lower market capitalisation are likely to be more risky and volatile, in addition to having lower trading volumes. In addition, market capitalization is frequently used as a method for classifying stocks into different size groups, such as large-cap, mid-cap, and small-cap, which can be helpful for investors who are wanting to diversify the holdings in their portfolio.

How to Calculate Market Cap?

You first need to determine the total number of outstanding shares and the current market price to determine market cap.

The outstanding shares are a measure of the total number of equity securities held by shareholders. This figure takes into account block shares held through investment firms as well as restricted stocks held by the company’s management. Additionally, unless a company provides employee stock options or conducts a second initial public offering, the number of shares that are actively traded will almost always remain the same. 

When a company’s stock was originally made accessible to the public, the company’s initial public offering (IPO) numbers are the best resource for determining the number of shares that are still outstanding. Take, as an illustration, the fact that a sizable technological company has just released an initial public offering (IPO) comprising 7.5 million shares. This value represents the total number of shares that are still outstanding, and it takes the place of this element in the formula.

Then, multiply the share price by the total number of shares that are currently outstanding.

That is, 

Market cap = Total number of outstanding shares * Share price

What is the Market Cap Formula?

The market cap formula is 

Market cap = Total number of outstanding shares * Share price

That means the current market cap of the company is Rs.100,000.

What is the Market Cap Rate?

Market cap rate is not a term related to stock market but properties. 

The market capitalization rate, which is often referred to as the “cap rate,” is a measurement of the connection between both the market value of a property and the income that the property is anticipated to create. Another name for the market capitalization rate is the “price-to-book ratio.” To determine it, divide the property’s annual net operational revenue by the property’s current market value.

This will give you the capitalization rate. When determining the probable return on investment of a real estate property, investors often use the capitalization rate (cap rate). Lenders also use it to figure out how much of a risk it is to provide a borrower with a loan for the purpose of purchasing a property.

What are the Types of Market Cap?

Companies are divided into three based on their market cap – large cap, small-cap and mid-cap.

Companies with a large market capitalization are those that have been around for a long time and hold a big portion of their target industry. Large-cap companies are those that have market capitalization that are at least 20,000 crore rupees high. 

Companies are considered to be mid-cap if their market capitalization is more than 5,000 crore but less than 20,000 crore rupees. 

Companies with a market capitalization that is less than Rs. 5,000 crores are considered to be small-cap companies.

1. Large-cap

Large Cap is the term used to describe those companies that are listed by the Securities and Exchanges Board of India (SEBI) as being among the top 100 corporations in terms of their total market capitalization.  The phrase “large market capitalization” may be shortened to “large cap.” Large-cap firms in India are defined as those businesses that have a market valuation that is more than RS. 20,000 crores. 

Large market capitalization corporations are more reliable than other types of businesses. Nobody wants to put their money into a firm that will fail in a relatively short amount of time. Investors have more reason to believe that a large-cap firm would never go out of business because of the company’s larger market capitalization. As a result, it is safer to put money into such businesses.

Large-cap corporations are not immune to recessions.  During market downturn, not only does it affect companies with a little market capitalization, but it also affects corporations with a huge market capitalization. Nevertheless, large-cap enterprises have the ability and the capability to endure a downturn, and they will not be forced to cease operations as a result. 

Investors that have a more traditional outlook on the market might generate money via the purchase of the stocks of big-size companies. Large-cap firms do not experience rapid development. Hence, companies pay dividends since they are aware that the value of their stock would not rise at the same rate as the growth of the company.

Below is the list of top large-cap companies in India and their market cap.

Company name	Market capitalization (as of Jan 5th, 2023)
RELIANCE INDUSTRIES LTD.	1700503.24
TATA CONSULTANCY SERVICES LTD.	1211274.07
HDFC Bank Ltd	892113.56
INFOSYS LTD.	620776.09
ICICI BANK LTD.	613280.43
HINDUSTAN UNILEVER LTD.	606499.99
STATE BANK OF INDIA	540117.5
HOUSING DEVELOPMENT FINANCE CORP.LTD.	479087.29
Life Insurance Corporation of India	460428.21
BHARTI AIRTEL LTD.	449061.2
ADANI ENTERPRISES LTD.	436517.83
ITC LTD.	413764.32
Adani Total Gas Ltd	399670.98
Bajaj Finance Limited	369303.67

2. Mid-cap

Companies that fall into the midcap category have a valuation that is somewhere in the middle. To be more specific, companies that have a market valuation that is between 5,000 and 20,000 crores are considered to be in the mid-size group. They are neither as huge as large-cap firms nor as little as small-cap enterprises.

Investing in companies like these may provide a number of advantages, one of the most appealing of which is the possibility that the company’s earnings will grow in the future. It is anticipated that market share, value, and productivity would all exhibit an increased trend in addition to earnings. 

The position of these businesses in the market is seen as being unstable since they have just recently reached the development stage of their respective industries. Therefore, compared to large-cap stocks and small-cap stocks, mid-cap stocks are seen as riskier investments; yet, they are regarded as less dangerous investments than small-cap stocks. 

Financial experts recommend that those who want to reduce the likelihood of incurring losses should diversify the holdings in their portfolio. As a result, a buyer need to have an appropriate distribution of large-cap, mid-cap, and small-cap stocks in their portfolio.

Midcap companies are often less risky than smallcap companies, and as a result, they have a tendency to do rather well in terms of financing during challenging times. They provide higher returns than large-cap companies and have thus become quite enticing to stock purchasers as investment options due to this fact. 

Checking benchmark indexes such as the Nifty and the Sensex is a quick and easy method for locating stocks and firms with a midcap value. Companies ranked 101st through 250th on the list are considered to be midcap businesses.

Below are the list of important mid-cap companies and their market cap in India.

Name of the company	Market cap (in crs)
Procter & Gamble Health Ltd	6,679
Gillette India Ltd	16,362
Aegis Logistics Ltd	12,031
Amara Raja Batteries Ltd	9,774
Bajaj Electricals Ltd	13,499
Balrampur Chini Mills Ltd	7,880
Century Textiles & Industries Ltd	7,969
BASF India Ltd	12,037
BEML Ltd	6,299
Blue Star Ltd	11,417
CESC Ltd	10,220
Chambal Fertilisers and Chemicals Ltd	13,173
Exide Industries Ltd	15,224
Mangalore Refinery And Petrochemicals Ltd	9,893
E.I.D. – Parry (India) Ltd	9,984
Esab India Ltd	6,415
EPL Ltd	5,258
Finolex Cables Ltd	8,349
Godfrey Phillips India Ltd	10,035
Godrej Industries Ltd	14,528
GHCL Ltd	5,059
HFCL Ltd	10,257
Ingersoll-Rand (India) Ltd	6,095
Kajaria Ceramics Ltd	18,576
Whirlpool Of India Ltd	19,094
Kirloskar Ferrous Industries Ltd	5,031
Lakshmi Machine Works Ltd	12,983
The Ramco Cements Ltd	16,725
Maharashtra Scooters Ltd	5,333
NCC Ltd	5,726
Piramal Enterprises Ltd	19,481
Raymond Ltd	9,716
Birla Corporation Ltd	7,649
Prism Johnson Ltd	5,605

3. Small-cap

The shares of companies with a valuation of less than Rs. 500 crores each are referred to as having a “mall-cap” market capitalization. Small caps are new, fast-growing enterprises that have a primary emphasis on expansion potential but are also subject to a significant level of risk and volatility. You have the opportunity to compete with and maybe beat the performance of institutional investors, who often favour large-cap stocks.

The Securities and Exchange Board of India (SEBI) assigns each company a certain market capitalization, which is then used to classify the firms. Small-cap companies accounts for approximately 95% of all enterprises in the country. 

A company that is publicly traded and is listed on the stock market is said to have a market capitalization that is equal to the market value of the company. Companies that have modest sales and, as a result, a lower size of capital are included in the category of small-cap stocks. They often have a lower size of the staff as well, and their business management is not as solid as that of large or mid-cap companies.

However, both large and mid-cap enterprises started out as tiny businesses in the past and expanded their operations as their capitalization increased. Below is a list of some of the best small-cap stocks in India.

What factors affect a company’s market cap?

The five key factors that affect a company’s market cap are Stock price, number of outstanding shares, earnings performance, investor sentiment, and economic climate.

• Stock price: The current market price of a company’s stock has a direct impact on market cap. If the share price rises, the market cap will increase. 
• Number of outstanding shares: The total number of shares a company has issued that are held by all shareholders. More outstanding shares means a higher market cap, all else being equal.
• Earnings performance: Strong earnings and profit growth tend to boost a company’s stock price, leading to an expanding market cap. Weak earnings can cause the share price to drop, lowering market cap.
• Investor sentiment: Market sentiment and investor demand for a stock can drive the share price up or down, affecting market cap regardless of underlying fundamentals. Speculation can contribute to expanding or contracting market cap.
• Economic climate: The overall economic environment has an influence on the stock market’s valuation of companies. A strong economy with low interest rates can boost market caps across the board.

Changes in these areas directly or indirect impact the market value of a public company.

How to find marketcap of a company?

You will be able to find the market cap of a company using Strike. For that, search and navigate to the security of your choice. In the overview section of the page, you will be able to find the market cap. See the image below for reference.  

Does a company’s marketcap affect its stock price?

No, but the stock price of the company affects the marketcap.

How investors should use marketcap?

Market capitalization, or market cap, provides a quick way for investors to assess the total market value of a company’s shares. Investors should use market cap along with other metrics to determine if a stock is potentially under or overvalued compared to its peers. Understanding differences in market cap between companies in the same sector allows investors to identify stocks that may present good value or growth opportunities within an industry.

What is the historic world market capitalization?

World market capitalization refers to the total market capitalization of all the publicly traded companies. Below is a year-wise historic world market capitalization data.

Year	World market cap(in mil. US$)	World market cap(% of GDP)	Number of listedcompanies
1975	1,149,245	27.2	14,577
1980	2,525,736	29.6	17,273
1985	4,684,978	47	20,555
1990	9,519,107	50.8	23,732
1991	11,340,785	56.8	24,666
1992	10,819,256	50.2	24,947
1993	13,897,390	61.7	28,300
1994	14,639,924	60.9	30,290
1995	17,263,728	64	33,379
1996	19,806,691	72.3	35,617
1997	22,029,761	80.7	36,946
1998	24,555,201	89.6	37,928
1999	33,181,159	115.1	38,414
2000	30,925,434	101.1	39,892
2001	26,792,162	88.4	40,157
2002	22,802,792	72.7	38,894
2003	31,107,425	84.9	41,051
2004	36,540,980	89.2	38,724
2005	40,512,446	92.6	39,096
2006	50,074,966	106.1	43,104
2007	60,456,082	114	44,034
2008	32,418,516	56.2	43,949
2009	47,471,293	83.8	42,669
2010	54,259,518	87.3	43,427
2011	47,521,341	68.8	44,323
2012	54,503,237	78.4	43,772
2013	64,367,842	89	44,853
2014	67,177,254	90.3	45,743
2015	62,268,184	94.5	43,983
2016	65,117,714	97.1	43,806
2017	79,501,948	111.1	43,440
2018	68,893,044	91.9	43,554
2019	78,825,583	108.4	43,248
2020	93,686,226	134.7

What is India’s market cap?

India’s total marketcap is US$4,574.606 billion, as of January 2024. This shows a 8.82 % monthly rise. 

Which companies has the highest marketcap?

Below is the list of companies with the highest marketcap in India as of March 29, 2024.

Rank	Company Name	Market Cap (USD Billion)
1	Reliance Industries	241.31
2	Tata Consultancy Services	168.32
3	HDFC Bank	141.73
4	ICICI Bank	92.71
5	Bharti Airtel	87.2
6	State Bank of India	80.58
7	Infosys	74.38
8	Life Insurance Corporation of India (LIC)	69.57
9	ITC	64.18
10	Hindustan Unilever	63.96
11	Larsen & Toubro	62.09
12	Bajaj Finance	53.71
13	HCL Technologies	50.16
14	Maruti Suzuki India	47.54
15	Sun Pharmaceutical	46.66
16	Adani Enterprises	43.74
17	Tata Motors	43.6
18	Kotak Mahindra Bank	42.59
19	Titan Company	40.5
20	Oil & Natural Gas	40.48

How to increase marketcap?

A company increases its market cap by boosting its stock price, which is often achieved by improving financial metrics like revenue and profit growth that build investor confidence in the future potential of the business. A company also increases its market cap by issuing new shares, although this causes dilution and only increases market cap if the share price remains stable or rises after the new share issuance.

How marketcap is related to a company’s valuation?

Market capitalization is directly related to a company’s valuation because it is calculated by multiplying the total number of outstanding shares by the current market price of the stock, giving an indication of the market’s valuation of the company as a whole.

What does Market Cap mean in Stocks?

Market cap in stocks means the total value of a company based on its stock price. Market cap is derived by multiplying the number of outstanding shares with the current stock price. The market capitalisation of a company may be a helpful metric for investors to utilise when analysing the size of a company and determining whether or not it corresponds with their investing goals.

For instance, an investor who is looking for large, well-established companies to invest in might prefer to concentrate on stocks with high market caps, while an investor who is looking for smaller, up-and-coming companies to invest in might prefer to concentrate on stocks with lower market caps. Both types of investors are looking for the same thing, which is a return on their money.

Investors are able to observe which firms are the largest and most prominent in a certain industry, which makes market capitalization a useful metric to use when comparing companies operating in the same sector.

What does Low Market Cap mean in Stocks?

A low market cap company in India is one with a market capitalization of less than INR 500 crore . Small-cap and mid-cap companies often fall under the low market cap category in India. These companies may have higher growth potential compared to large-cap companies, but they may also be riskier and more volatile.

What does High Market Cap mean in Stocks?

A high market cap indicates that a company is larger in size and has a higher valuation. This may suggest that the company is more established, profitable, and less risky than a company with a lower market cap. Investors may consider high market cap companies as a safer investment, especially if they are looking for stable returns over a longer period of time

What is a Good Market Cap?

A good market cap typically refers to a large and well-established company with a market capitalization of over INR 10,000 crores or more. Companies with such high market caps are usually industry leaders, with a proven track record of stable earnings and strong fundamentals.

Is it better to have a Large Market Cap?

Yes, It is largely true that large-cap investments are regarded to be less risky than small-cap or mid-cap equities, and they may be a viable solution for risk-averse investors who are searching for stable long-term growth. This is because large-cap stocks tend to have a greater market capitalization than small-cap or mid-cap stocks.

Large-cap stocks are shares of stock held by large, well-established corporations that have high market capitalizations. These businesses are generally financially secure, with solid track records of income and earnings growth, and they frequently have a diverse range of services or products to offer their customers. 

Large-cap companies have a history of success and are in a strong financial position; as a result, the price volatility of their stocks is typically lower than that of stocks issued by smaller companies. This quality can make large-cap stocks an appealing option for investors who prefer to minimize their exposure to risk. In addition, large-cap stocks may provide investors with a lower potential return compared to small-cap or mid-cap stocks, which may provide investors with higher returns but also carry a higher level of risk. 

However, it is essential to keep in mind that even large-cap stocks are not risk-free investments. Investing in large-cap stocks is not a foolproof way to make money because their performance can be impacted by a variety of factors, including shifts in economic conditions, trends in specific industries, and other aspects of the market. Before deciding to put money into large-cap stocks, investors should conduct a thorough analysis of the potential downsides as well as the upsides, just as they would with any other type of investment.

What is Free Float Market Cap?

Free float market capitalization, also known as “free float capitalization,” is a measure of the total value of a company’s outstanding shares of stock that are available for trading by the general public. Understanding a company’s current value using only the Free Float Market Capitalization metric is an overly simplistic method.

Businesses typically give away a portion of their total share capital to individuals and organizations such as its founders, directors, and welfare trusts. These share capitals are not offered to the general public and they do not participate in the stock market’s trading activities. Free-float market capitalization refers to the amount of a company’s total share capital that is open to trading by the general public on a stock exchange. 

It is not the financial success of the company that drives the investments of the promoters and others who hold controlled shareholdings; rather, it is things like preserving control of the company. The free float market cap is used to discriminate between strategic shareholders (control shareholders) and public shareholders.

This is its primary function. The price of the stock and the public shareholders’ projections for the future growth of the company serves as the basis for their investment decisions.

What is the difference between Market Cap and Free Float Market Cap?

The main difference between a market cap and the free float market cap is the number of shares that is considered. Market cap considers the total outstanding shares a company has while free float market cap only takes into account certain shares held publicly.

Market cap includes all shares of stock, regardless of whether they are held by insiders or are available for trading by the general public. 

Free float market cap is calculated by multiplying the company’s stock price by the number of shares that are available for trading, rather than the total number of shares outstanding. This excludes shares that are held by insiders or are otherwise not available for trading by the general public.