In India, companies are often divided into micro-cap, small-cap, mid-cap, and large-cap stocks. Cap stands for Capitalization. Before we delve into each category, let us understand what market capitalization is.
In the stock market, market capitalization refers to the total value of a company. It’s calculated by multiplying the total number of shares a company has by the price of each share. The resulting number represents the total worth or value of the company in the market. Example, Imagine a company called Niftystags Ltd, Niftystags Ltd has a total of 1,000 shares and each share is priced at 100 rs. To calculate the total market cap, we multiply the total shares by it’s current market price which is 1,000 x 100 = Rs 1,00,000.
The market capitalization threshold is changed bi-yearly and selected by AMFI(Association of Mutual Funds) and SEBI.
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What is Micro-cap?
Micro Cap companies are companies that have a market capitalization of less than 5000 crores. They are the smallest in terms of market capitalization. Micro-cap companies are often in their earliest stages of development. They have a very low market presence. These stocks are quite volatile and can have abrupt price changes due to their size and lack of liquidity.
Investing in micro-cap stocks is requires a higher risk appetite. While these companies are on their initial stages of development, they can offer very high significant growth potential.
Stocks are ranked by market capitalization from 1 to the total number of companies that are traded in the Indian Stock Market. Companies from 501st rank and above market cap are known as micro cap companies.
What is Small-cap?
Small Cap stocks have a market capitalization of more than 5000 crore but less than 22,000 crore. When a micro-cap company crosses the threshold of 5000 crores they are considered to be small-cap. These companies are in their initial growth stage and offer substantial returns as they adapt to market changes better than micro-cap companies, but they also face lower liquidity and limited financial resources.
The 251st company to 500th company by market cap in the Indian stock market is known as small cap company.
What is Mid-cap?
Mid Cap stocks have a market capitalization of more than 22000 crore but less than 67,000 crore. One of the favorite among investors as mid-cap companies are well established and have a solid foundation, financial history and earnings. These companies have crossed their initial growth stage and have a well established presence in their respective sectors. Mid-cap companies offer a moderate growth rate and are moderately stable.
The 101st to 250th company by market capitalization are known as midcap companies.
What is Large-cap?
Large-cap stocks have a market capitalization of more than 67,000 crores. These companies are also known as blue-chip stocks or blue-chip companies. Large-cap companies are typically market leaders in their respective sectors and they command a very strong market presence, a wide customer base, and a strong brand recognition.
Large-cap companies are known for their stability, history of well established revenue streams, robust balance sheet and consistent dividend payments. They offer very low risk and are more stable. They are preferred by investors seeking a low risk investment approach, as these stocks tend to provide a steady income through dividends and have the potential for gradual growth over time.
The top 100 companies that is 1st to 100th company by market cap in the Indian Stock Market is also known as large cap stock.
Conclusion:
| Company | Market Capitalization | Risk | Growth Potential |
| Micro-cap | Less than 5000 Crore | Very High | Very High |
| Small-cap | Between 5000 to 22,000 Crore | High | High |
| Mid-cap | Between 22,000 to 67,000 crore | Medium | Medium |
| Large-cap | Above 67,000 Crore | Low, Stable | Steady |
According to AMFI the categorization of funds and their thresholds are changed bi-yearly.
A large-cap company is not completely immune to market downturns, and over the years there has been instances where large-cap companies have failed too. Similarly micro-cap and small-cap companies while offers a good growth potential has been a target of pump and dump schemes. So proper risk management, diversification, research, and analysis should be done before investing in companies, be it a small-cap or a large-cap company.