Market cap (Market Capitalisation)
Full form: Market Capitalisation
Market cap is short for market capitalisation: the total market value of a company's shares, found by multiplying the share price by the number of shares in issue. It tells you how large the market considers a company to be.
How it is calculated
Market cap equals the share price multiplied by the number of shares. If a company has 10 crore shares and each trades at ₹500, its market cap is ₹5,000 crore. It changes every time the share price changes.
Large cap, mid cap and small cap
Companies are grouped by size. For mutual funds, the largest companies by market cap are called large caps, the next group mid caps and the rest small caps. The exact cut-offs are set by SEBI's rules and AMFI publishes the current list, so check it for the latest bands.
Large companies tend to be steadier but grow more slowly. Small companies can grow faster but often swing more in price and can be harder to buy and sell.
Market cap is not share price
A share priced at ₹2,000 is not necessarily bigger or more expensive than one priced at ₹50. The price per share depends on how many shares exist. Market cap compares companies fairly because it counts all of them.
What market cap does not tell you
A large market cap does not make a company a good investment, and a small one is not automatically a bargain. Market cap measures size, not value, quality or safety. Index providers also use free-float market cap, which counts only the shares available to the public, when they weight companies in an index such as the Nifty 50.
Two companies (hypothetical numbers)
Company A trades at ₹2,000 a share and has 1 crore shares, so its market cap is ₹2,000 crore. Company B trades at ₹50 a share and has 100 crore shares, so its market cap is ₹5,000 crore.
Company B is the larger company, even though each of its shares costs far less than one of Company A's.
Common questions
- What is market cap?
- The total market value of a company's shares: the share price times the number of shares.
- What is the difference between large cap and small cap?
- It is a ranking by size. For mutual funds, large caps are the biggest companies by market cap, mid caps are the next group and small caps are the rest. The exact cut-offs are set by SEBI and published in AMFI's list.
- Does a higher market cap mean a better company?
- No. It means the market values the company at a larger total amount. It says nothing by itself about quality, price or safety.
- Where can I find a company's market cap?
- On the exchange websites, in your broker's app and on most financial websites.