Difference between Small cap, Midcap and Large cap stocks

One of the most popular ways to categories stocks is based on its market capitalization as it defines the size of the company. Even mutual fund schemes are divided based on in which type of company they invest. Before knowing the difference between small cap, midcap and large cap, you must understand how market capitalization of a stock is calculated.

Market capitalization of a stock

To calculate the market capitalization of a particular stock, you need to take the current market price of the stock and multiply it with the total number of shares outstanding as on that day. It’s also referred to as Market cap.

For instance, if the total number of shares outstanding for a company as on 04-07-2019 is 1,00,000 and current market price per stock is Rs 10, then its present market capitalization is Rs 10,00,000 (1,00,000 * Rs 10).

Stock’s trading price changes minute to minute. Therefore, the company’s market capitalization will not always be constant. If share prices falls drastically, then market capitalization will also get reduced according to the fall in the share price.

Based on the current market capitalization, stocks are classified to large cap, midcap and small cap. However, there is no fixed parameter to classify companies on the basis of market capitalization. The range of market capitalization to classify a stock into small, big or midcap can vary among mutual funds, brokerage houses and country to country.

What is a small-cap stock?

Small cap is a term that refers to companies with relatively small market capitalization. Small cap stocks are shares of small companies. 

One of the biggest opportunities of investing in small-cap stock is that it can turn into a large company within a short period of time based on its growth. Companies like Microsoft and Wal-Mart were part of small cap group but they managed to grow to a very large company. However, it’s not always the case. These stocks are very risky in an economic downturn as they have high chances of closing down businesses or can go bankrupt.

In USA, Company with a market capitalization of less than $ 2 billion is considered as small cap stock. In India, Companies with a market capitalization of below Rs 5,000 Crore is considered as small cap stocks. In this list, you will find companies relatively young and some old businesses which may have lost value due to various reasons such as bad reputation.

Here are 10 Indian stocks falling into small cap category as on 06-07-2019:

  • Reliance infrastructure ltd
  • Reliance capital ltd
  • Strides pharma science ltd
  • Vakrangee ltd
  • Wockhardt ltd
  • IRB infrastructure developers ltd
  • Gujarat pipavav port ltd
  • TV18 Broadcast ltd
  • Dewan housing finance corporation ltd
  • Arvind ltd

What is midcap stock?

In USA, Company with market capitalization between $2 billion and $10 billion is considered as midcap stock. In India, a company with a market capitalization between Rs 5,000 to 20,000 Crore is considered as midcap stock.

Similar to small cap, midcap companies could also become a successful large company to get you good returns. Midcap stocks are less risky than small cap but tend to be high risky than large cap stocks.

In general, people invest in these stocks due to their high growth potential. Initially they might be under-recognized but when growth momentum picks up, value investors gets benefited as mutual fund and other investors started investing into it.

However, these stocks are very risky and time consuming to get good returns. Here are 10 Indian stocks in midcap category as on 06-07-2019:

  • Oil India
  • Tata power company ltd
  • Glenmark pharmaceuticals ltd
  • Union bank of india
  • NLC india limited
  • Central bank of india
  • Castrol india ltd
  • Emami ltd
  • Apollo hospitals enterprises ltd
  • SJVN ltd 

What is large cap stock?

Large cap refers to companies with large market capitalization. Companies falling into this category of stocks are part of BSE Sensex and Nifty 50. In India companies with a market capitalization of above Rs 20,000 Crore is considered as a large cap stock. 

In the USA a company with a market capitalization of $10 billion or higher is considered as large cap stock. People invest in these stocks because of its transparency in reporting, management, large balance sheet and it’s safe in case of economic downturn.

As of 06-07-2019, here are the top 10 Indian stocks by market capitalization. These stocks are known as large cap stocks as their market capitalization is more than Rs 20,000 crore.

  • Tata consultancy services – TCS
  • Reliance industries – RIL
  • HDFC Bank
  • Infosys
  • Oil & Natural gas corporation ltd – ONGC
  • ITC ltd
  • State Bank Of India – SBI
  • Sun Pharmaceuticals industries ltd
  • Bharti airtel ltd
  • ICICI Bank

In simpler terms, large-cap stocks are shares of large companies and small-cap stocks are shares of smaller companies. Midcap stocks are shares of those companies which is neither a small or large.