def. of mid-cap,small-cap and large-cap

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bharat kumar reddy (Querist)
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19 February 2008 hi every body,my name is bharat kumar reddy, i am recently joined, i want to know what is small-cap,mid-cap and large- cap in stock market.can any one explain this please

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)
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19 February 2008 Although, there is no fixed definition of a large-cap company in India, in the international arena companies with market capitalization of more than USD 2-billion are regarded as large caps. That implies that a large-cap company is one with a market cap of more than Rs 8,000 crore. Market capitalization is calculated by multiplying the total number of shares issued by the company with price per share. For instance, if ABC Limited has issued 1 lakh shares in the market and each share has a cost of Rs 250, it’s market capitalization will be: 1-lakh shares x Rs 250 = Rs 25 crore.

Large Cap companies are generally included in sensex or nifty index and are generally blue chip companies. Investing in these companies is generally a safer investment option since these companies have consistent track record of performance over a consistent period of time and proved the ability to succeed over hiccups that come up during their initial years of operation. Of course there are some sectoral changes do affect returns in these shares. Few common such examples are Cipla, Ranbaxy, Infosystech, HLL which have delivered negative return in past six months because of changed economic environment (rupee hardening, drug policies etc). But the moot point is, if you continue to hold these shares, you would one day recover your costs. However, the cost of holding or blockage of funds in the meantime could be a factor. On the other hand, there are innumerable examples, where a small cap or mid cap share has never, not even after years, has recovered to previous high level.

CA. Dashrath Maheshwari

CA. Dashrath Maheshwari (Expert)
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19 February 2008 Stocks can be classified according to the market capitalization of the company. The market capitalization of a company represents the total lilangeni value of the company’s outstanding shares. This is equal to the current market price of its stock multiplied by the number of shares of stock that it has outstanding. That number gives you the market value of the company, which is one measure of the company’s size. Roughly speaking, there are three basic categories of market capitalization: large cap, mid cap, and small cap. The definitions for each of these might vary somewhat depending on whom you’re talking to, but usually they are as follows:
• Large cap: market cap highest valued
• Mid cap: market cap mid range value
• Small cap: market cap lowest value
In general, the larger the cap size, the more established the company and the more stable the price of its stock. Small cap and mid cap companies usually have a higher potential for future growth than large cap companies, but their stock tends to fluctuate more in price.

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