In the Indian stock market, as in most global stock markets, companies are categorised based on their market capitalisation, which refers to the total value of a company’s outstanding shares of stock. The three main categories of market capitalisation are large-cap, mid-cap, and small-cap stocks.
Here’s a breakdown of the differences between these categories:
Large-cap stocks are those with a market capitalisation of Rs 20,000 crore or more. These companies are well-established and have a long track record of profitability. They are considered to be less risky than mid-cap and small-cap stocks. Large-cap stocks are typically the largest and most well-established companies in the stock market.
Large-cap companies are often leaders in their respective industries and have a track record of stable performance. Investors often consider large-cap stocks to be less risky compared to mid-cap and small-cap stocks because they are relatively more stable during market downturns.
Mid-cap stocks have a market capitalisation of Rs 5,000 crore to Rs 20,000 crore. These companies are growing and have the potential for high returns. However, they are also more volatile than large-cap stocks.
They are typically established companies but may still be in a growth phase, and they have the potential for both growth and volatility.
Mid-cap stocks can offer a balance between the stability of large-caps and the growth potential of small-caps.
Small-cap stocks have a market capitalisation of less than Rs 5,000 crore. These companies are newer and have less financial resources than large-cap and mid-cap stocks. They are considered to be the riskiest type of stock, but they also have the potential for the highest returns.
These companies are typically in their early stages of development or operate in niche markets.
Investors interested in small-caps often have a higher risk tolerance and a longer investment horizon, as it may take time for these companies to realise their growth potential.
What Investors Should Know?
It is important to remember that there is no one-size-fits-all answer to the question of which type of stock is best for you. The best way to choose the right stocks for your portfolio is to talk to a financial advisor who can help you understand your risk tolerance and investment goals.