Market Capitalisation

Investments

Market capitalisation (market cap) is the total value of all outstanding shares of a company: share price x total shares outstanding. It determines whether a company is classified as large, mid, or small cap. Nifty 50 companies range from Rs 20,000 Cr to Rs 20 lakh Cr market cap.

In detail

Market cap categories (India, 2024):nMegacap (informal): above Rs 5 lakh Cr (Reliance, TCS, HDFC Bank)nLargecap: top 100 companies by market capnMidcap: 101st to 250th companynSmallcap: 251st and below (Rs 500 Cr to Rs 20,000 Cr range)nnFree float market cap: only publicly traded shares counted (excludes promoter holdings)nNifty 50 uses free float market cap for index weightingsnnMarket cap vs enterprise value:nMarket cap = Equity value (shareholders)nEnterprise value = Market cap + Debt - Cash (total business value)nnFor investors: market cap determines which category of mutual fund the stock belongs to.

Formula

Market Cap = Share price x Total shares outstandingnFree Float Market Cap = Share price x Publicly held sharesnP/E Ratio = Market Cap / Net Profit (a common valuation metric)

Real-life example

🇮🇳 India example

Reliance Industries: 6.76 billion shares, price Rs 2,950 = market cap Rs 19.9 lakh Cr (approx $240 billion). Nifty 50 weight: approximately 11% (largest). When Reliance rises 5%, Nifty moves approximately 0.55%. This is why the movement of a few mega-cap stocks can dominate Nifty performance.

Frequently asked questions

Is a high market cap company always a safer investment? ▼
Generally more stable and liquid (easier to buy/sell) but not necessarily a better investment. A mega-cap company growing at 5% per year may be priced for perfection. A mid-cap growing at 20% may offer far better return potential. Market cap indicates size, not valuation attractiveness. Use P/E, P/B, and earnings growth rates alongside market cap for investment decisions.