Market Capitalization refers to the value of a company traded on the stock market. It is calculated by multiplying the total number of shares of the company by the present share price.
Market Capitalization = Present/Current Price of the Share (x) Number of Outstanding Shares
Where, Number of outstanding shares = Number of shares issued by the company to its investors.
Let’s understand this with the help of a simple example:
Consider a company named XYZ Ltd. The current price of its share in the market is Rs. 10 per share and the number of shares issued to its shareholders i.e. the number of outstanding shares is 10,000. So here the market capitalization is calculated by multiplying Market rate i.e. 10 by the number of outstanding shares i.e. 10,000 which is equal to 1, 00,000.
So in this manner, market capitalization is calculated for all the companies listed on the stock market. Now, all these companies listed on the stock market are divided into large-cap companies, mid-cap companies, and small-cap companies based on their market capitalization value.
Market capitalization wise, the companies which have a large market capitalization are termed as large-cap, those with medium-sized capitalization are termed as mid-cap and those with small capitalization are termed as small-cap. The limit based on which this is determined whether the company belongs to large-cap, medium-cap or small-cap keeps on changing from time-to-time.
In the current scenario, companies such as TCS, Infosys, etc. having a market capitalization of more than INR 20 thousand crores are termed as large-cap. These large companies have usually been around for a long time, and they are major players in well-established industries. Those having market capitalization of between INR 5 thousand crores and 20 thousand crores are termed as mid-cap companies such as Balkrishna Industries Limited, Apollo Hospitals, etc.
Mid-cap companies are in the process of expanding. They carry an inherently higher risk than large-cap companies because they are not as established, but they are attractive for their growth potential.
Similarly, those having market capitalization value under INR 5 thousand crores are termed as small-cap companies. These small companies could be young in age and/or they could serve niche markets and new industries. These companies are considered higher risk investments due to their age, the markets they serve, and their size. Smaller companies with fewer resources are more sensitive to economic slowdowns.
While calculating the market capitalization value; we consider the share price as well as the number of outstanding shares. Now, the price of the shares keeps on fluctuating which means it keeps on changing. Similarly, due to this the market capitalization also fluctuates. So the company which was earlier termed under the large-cap segment can fall under small-cap over a period of time while the company which was termed as a mid-cap may fall into the large-cap category over a period of time because of such fluctuations.
For example, in the year 2018-19, the company called Berger Paints was under the mid-cap category which now falls under the large-cap category. On the other hand, in that year a company had a market capitalization of more than INR 1 lakh crore, today it falls under the small-cap category. The name of the company is Reliance Communications.
Now, where to check this market capitalization?
We can check the market capitalization value of any company on National Stock Exchange’s website (http://www.nseindia.com/) as well as on Bombay Stock Exchange’s website (http://www.bseindia.com/) by just mentioning the name of the company in the search bar. There, under the company information section, you can easily locate the details of market capitalization.
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