market capitalization in Indian stock market COVER

Basics of Market Capitalization in Indian Stock Market.

Basics of Market Capitalization in Indian Stock Market. Let’s start this post with a general question. The stock prices of two famous Indian companies are given below.

MRF= Rs 69,780

HDFC Bank= Rs 1,650

What do you think? Which company is bigger?

If you think that MRF is a bigger company as its share price is too big compared to HDFC bank, then you need to read this post completely.

You cannot judge the size of the company just by looking at its share price.

To understand the answer of the question about which company is bigger, you need to understand the concept of market capitalization. So, be with me for the next 8-10 minute to learn everything about market capitalization in Indian stock market.

Here are the contents which are going to cover in this post:

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  • Classification of companies in Indian stock market.
  • What is Market Capitalization?
  • How are companies classified using market capitalization in Indian stock market?
  • What are large, mid and small cap companies? – With examples
  • How to track the performance of different classifications of companies in Indian Market?
  • What are Blue Chips stocks?
  • Top 10 blue chips companies in Indian stock market.

Let’s get started.

Market Capitalization in Indian Stock Market

Classification of companies in Indian stock market:

Any company in Indian stock market can be classified in one of the following categories:

  1. Large Cap
  2. Mid Cap
  3. Small Cap

market capitalization in indian stock market

Here cap means capitalization. Although there are few other categories also like Mega-cap, Microcap etc, however, they aren’t used much in classifying the stocks.

These companies are classified based on their market capitalization, which we are going to discuss next.

What is Market Capitalization?

Market capitalization shows the size of the company and its aggregate value. Let us define market capitalization now:

Market Cap or Market capitalization refers the total market value of a company’s outstanding shares. It is calculated by multiplying a company’s outstanding shares with the current market price of one share.

Market Capitalization = (Total no of outstanding share) * (Price of one share)

**Outstanding Shares refers to all shares currently owned by stockholders, company officials, and investors in the public domain.

For example, let us assume for a company ABC,

Total number of outstanding shares= 1,00,000
Current price of 1 share= Rs 1,500
Market capitalization = 1,00,000* 1,500 = Rs 15,00,00,000

Therefore, the market capitalization of company ABC is Rs 15 Crores.

Now, let us move back to our original question. Which company is bigger? HDFC Bank or MRF?

We need to find the market capitalization of both these companies to figure out which one is bigger.

MRF
Total Number of outstanding shares 42,41,143
Current market price of one share Rs 69,780
Market Capitalization Rs 29,635 Crores
HDFC Bank
Total Number of outstanding shares 270,95,42,308
Current market price of one share Rs 1,650
Market Capitalization Rs 4,30,532 Crores

From the above table, we can notice that the market capitalization of HDFC bank is around 15 times that of MRF. Hence, HDFC bank is a much bigger company than MRF.

The skyrocketing share price of MRF is insignificant when we compare the total number of outstanding shares of MRF with HDFC bank.

In short, the share price cannot decide the size of a company. It’s the market capitalization which is used to classify the companies based on size.

If you want to learn stocks from scratch, I will highly recommend you to read this book: ONE UP ON THE WALL STREET by Peter Lynch- best selling book for stock market beginners.

How are companies classified using Market Capitalization in Indian stock market?

There is no hard and fast way rule (criteria) to define the classification of the companies based on the market capitalization. If you refer to different financial websites, the range of market cap will vary for different capitalization. However, in general, here is the commonly accepted classification of companies based on the market capitalization in Indian stock market.

Market Capitalization Classification
Less than 8,500 Cr Small cap
Between 8,500 Cr to 28,000 Cr Mid Cap
Greater than 28,000 Cr Large cap

Quick Note:  The above table is based on the latest circular by SEBI (Dec 2018). Here’s the link to the list of Average Market Capitalization of listed companies during the six months ended 31 December 2018 available on AMFIIndia Website.

Why there is no fixed market capitalization range for classifying companies?

Bombay stock exchange (BSE) uses the 80-15-5 rule to classify the companies in large cap, mid cap or small cap. Now, let me explain this 80-15-5 rule. The rule classifies the different companies listed on the exchange based on the decreasing order of their market capitalization in Indian stock market.

  • The largest market capitalization which covers up to 80% of the total market cap of all the listed company on the BSE is categorized as large cap company.
  • The next set which covers the 80-95% of the total market capitalization of all the listed company on the BSE is categorized as mid cap company.
  • Lastly, the set which covers 95-100% of all the listed company on the BSE is categorized as small cap company.
% of Total Market Capitalization Classification
 80% Large Cap
15% Mid Cap
5% Small Cap

Since the share price and market caps are dynamic; hence, there is no fixed market cap segment limit for classifying companies.

A few years ago, companies with a market capitalization around 10,000 crores- were considered to be large cap company. Now, they are mid cap company for this market cap. Most small cap companies are start-ups or in developing phase. They have a high growth opportunity. However, due to high failure rates of small caps, they also have a high risk.

Also read: S&P BSE Mid Cap and BSE Small Cap Index

What are large, mid and small cap companies?

“Every large cap company was a mid cap/ small cap once. However, every small cap company is not certain to become a mid/large cap.”

Large Cap companies:

They are the big and well-established companies. Most of the large-cap companies are leaders in their sector and have a huge market presence. Many of the large-cap companies are listed in Sensex 30 and Nifty 50. These companies have a very large capitalization to survive in adverse economic conditions. Here is the example of a few large-cap companies:

Company Name Industry Last Mkt Cap
Price (Rs cr)
Asian Paints Paints & Varnishes 1,153.95 110,686.63
Axis Bank Banks – Private Sector 504.6 120,949.11
Bharti Airtel Telecommunications – Service 365.9 146,264.87
Coal India Mining & Minerals 245.4 152,329.82
HDFC Bank Banks – Private Sector 1,678.55 430,532.82
Hero Motocorp Auto – 2 & 3 Wheelers 3,660.30 73,095.03
ICICI Bank Banks – Private Sector 291.5 186,912.15
Infosys Computers – Software 943.35 216,682.27
ITC Cigarettes 310.85 377,601.40
Kotak Mahindra Banks – Private Sector 985.45 187,552.70
M&M Auto – Cars & Jeeps 1,376.05 85,471.26
Maruti Suzuki Auto – Cars & Jeeps 7,237.20 218,621.38
Reliance Refineries 1,435.00 466,581.02
SBI Banks – Public Sector 288.85 230,314.68
Tata Motors Auto – LCVs & HCVs 443.1 150,470.15
Tata Steel Steel – Large 507.4 49,279.47
TCS Computers – Software 2,360.65 465,149.07
Wipro Computers – Software 256.85 124,987.03

Mid Cap companies:

These represent mid-sized companies that are relatively riskier than large-cap as investment options, yet they are not considered as risky as small-cap companies. These companies have the potential to become a large cap in a few years and have enough finance to survive harsh economic conditions.

Here are a few examples of mid-cap companies:

Company Name Industry Last Mkt Cap
Price (Rs cr)
Adani Power Power – Generation & Distribution 52.3 20,171.79
Aditya Birla F Retail 226.75 17,499.84
Ajanta Pharma Pharmaceuticals 1,043.05 9,181.24
Amara Raja Batt Auto Ancillaries 746.85 12,757.13
Apollo Tyres Tyres 226.8 12,974.09
Bank of India Banks – Public Sector 92.45 24,931.34
Bata India Leather Products 1,368.25 17,585.78
Berger Paints Paints & Varnishes 309.95 30,097.23
Castrol Lubricants 167.1 16,528.24
Future Consumer Food Processing 49.6 9,521.53
Future Retail Retail 445.4 22,385.73
Glenmark Pharmaceuticals 635.25 17,924.73
HEG Electrodes & Graphite 2,219.50 8,868.93
Jubilant Food Miscellaneous 1,349.90 17,814.50
Muthoot Finance Finance – Investments 592.75 23,747.25
NALCO Aluminium 54.5 10,167.62
PNB Housing Fin Finance – Housing 891 14,921.18
Tata Global Bev Plantations – Tea & Coffee 204.9 12,931.85
Tata Power Power – Generation & Distribution 73.35 19,839.51
TVS Motor Auto – 2 & 3 Wheelers 497 23,611.83
United Brewerie Breweries & Distilleries 1,399.20 36,995.57

You can find the list of more mid-cap companies here.

Small Cap companies:

These companies have small market capitalization and usually includes the start-ups or companies in the early stage of development. Small cap stocks are potentially big gainers as they are yet to be discovered within the sector. However, the risk level is high while investing in small-cap companies.

Here are a few examples of small-cap companies:

Company Name Industry Last Mkt Cap
Price (Rs cr)
Bombay Dyeing Textiles – Processing 83.2 1,718.37
Career Point Computers – Software – Training 100.75 182.69
D-Link India Computers – Hardware 99.95 354.87
Eros Intl Media & Entertainment 224.6 2,121.35
Everest Ind Cement – Products & Building Materials 362.4 558.93
Fineotex Chem Chemicals 31.45 350.04
Gati Couriers 128.85 1,267.50
Godawari Power Steel – Sponge Iron 93.35 318.42
Indraprastha Hospitals & Medical Services 52.95 485.41
Jayshree Tea Plantations – Tea & Coffee 100.35 289.79

You can find the list of small-cap companies here.

Here is a summary of the large-cap, mid-cap, and small-cap companies.

Criteria Small Cap Mid Cap Large Cap
Risk Very high High Low
Return Very high High Low
Liquidity Low High Very high

Also Read: How To Select A Stock To Invest In Indian Stock Market For Consistent Returns?

How to track the performance of different classifications of companies in Indian stock market?

You can track the performance of the companies of different classification of the various financial websites like Money control, BSE India, NSE website etc.

It would be best if you use the BSE India website for tracking. Here is a link, which you can use: http://www.bseindia.com/sensexview/indexview_new.aspx?index_Code=82&iname=BSE30#

  • S&P BSE Sensex is used to show the performance of the large-cap companies.

S&P Sensex midcap

What are Blue Chips stocks?

Blue chips are the nationally recognized, well established and financially sound companies.

These are the stocks of those reputed companies who are in the market for a very long time, financially strong and have a good track record of consistent growth and returns in the past many years.

Blue chip companies have huge market capitalization and are generally leaders in their market.

For example- HDFC bank (leader in the banking sector), Larsen and turbo (leader in the construction sector), TCS (leader in the software company) etc. Few other examples of blue-chip stocks are Reliance Industries, Sun Pharma, State bank of India etc.

These companies have stable performance and are very less volatile. That’s why blue-chip stocks are considered safe to invest compared to other companies.

Why are they called ‘Blue chip’ stocks?

The term ‘Blue chip’ has been derived from ‘Poker’ game.

In poker, blue chips are considered to be most valuable.

Mr Oliver Gingold, who used to work in Dow Jones, is credited to bring this name in the stock market. He used this name first time in 1923 referring it with few most valuable companies of that time. Later, the term ‘blue chips’ became popular to cite the reputed companies of the stock market.

Blue-chip stocks are known to give good consistent dividends to their shareholders.

These companies have a huge liquidity, which means that there are a large number of buyers and sellers in these stocks. So, they can be easily bought or sold anytime.

Besides all these pros of the Blue chip stocks, there are few cons too.

It’s not necessary that these companies will always perform. There are a number of examples of companies which were a blue chip in the past but are not anymore. Although most of them survive harsh economic conditions, nevertheless few blue chips stocks are financially hit hard by recessions and extreme adverse conditions.

In addition, as these companies have already achieved great success, therefore a large growth possibility is very less for such stocks. So, it will be very less likely to make quick returns or sharp profit in these stocks.

However, the chances of a sharp downfall are also very less in blue-chip stocks. Therefore, they are considered very less risky.

Few of the good properties of these stocks are- stability, consistent returns, good financial backup, less volatility and high liquidity.

Overall, Blue chip stocks are a good option for a safe long-term investment.

Top 10 Blue Chips stocks in Indian stock market.

Here is the list of top 10 blue chips stocks in Indian stock market.

S. No Company Sector
1 Reliance Industries Refineries, Oil & Gas
2 TCS Software company
3 HDFC Bank Non-public sector banking
4 ITC Cigarette, Hotels, Consumer products
5 ONGC Oil drilling & Exploration sector
6 Infosys IT Software
7 SBI Public sector bank
8 HDFC Financial company
9 HUL Consumer products
10 Coal India ltd Mining

Conclusion:

The various companies can be classified based on the market capitalization in Indian stock market as large, mid and small-cap companies. A thumb rule for classifying them is shown below:

Market Capitalization Classification
Less than 8,500 Cr Small cap
Between 8,500 Cr to 28,000 Cr Mid Cap
Greater than 28,000 Cr Large cap

The selection of a company to invest depends totally on your preference. If you looking for a steady long-term investment, select large-cap companies to invest. On the other hand, if you are looking for high profits and quick returns, then you should invest in small or mid-cap companies.

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I hope this post ‘Basics of Market Capitalization in Indian Stock Market’ is useful to the readers. Do comment below if you have any doubts or suggestions.

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