Investor Corner/The asset classes/Equity Concepts
2.1.2 Market Capitalisation
Market capitalisation is simply the total value of a company's shares. It is the most common way to group stocks by size, and size has a real relationship with risk and growth potential.
What the number means
Market capitalisation is calculated by multiplying a company's share price by the total number of shares outstanding. A company with 10 crore shares trading at ₹500 each has a market cap of ₹5,000 crore. This single figure is used to sort companies into large cap, mid cap and small cap buckets, each with a different risk and return profile.
Why size correlates with risk
Large cap companies are typically established, profitable and heavily covered by analysts, which tends to make their share prices less volatile. Small cap companies are often younger or less proven, with less analyst coverage and lower trading volumes, which usually means bigger price swings in both directions. Mid caps sit between the two.
No segment is automatically better
Higher growth potential in small caps comes bundled with higher risk of permanent loss, and the safety of large caps comes bundled with typically slower growth. Most diversified portfolios hold a mix, weighted by how much volatility the investor can genuinely tolerate rather than by which segment had the best recent run.
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