You would have often heard the term midcap and large stocks. The actual term is middle capitalization stock and large capitalization stock. Large cap stocks are those stocks whose capitalization is rather large. First, we need to understand what a Capitalization means?
Capitalization is arrived with the following formula:
Total Number of Outstanding Equity Shares x the current market price.
So, let's say that a company's outstanding equity shares total 1,000. If the current market price of the share is Rs 10, then the market cap is Rs 1000.
So, mid cap stocks actually mean, companies whose market capitalization is between the small cap and the large cap stocks.
In India there are many mid cap stocks. In the Nifty Mid Cap 50 we have names like Crompton Greaves, Canara Bank, MRF, Reliance Infra, Reliance Capital, Siemens and various other stocks which total around 50 forming part of the index. This does not mean there could only be 50 mid cap stocks but, we have just given you an example of those forming part of Nifty Mid Cap 50.
What about large cap stocks?
Large cap stocks have a higher capitalization as compared to mid caps or small cap stocks. In India these include the blue chip stocks including the likes of ITC, Reliance, ICICI Bank, HDFC Bank, Hindustan Unilever, Bharti Airtel, Infosys, TCS and others. Large investors including the mutual funds, dominant FIIs and domestic institutions prefer to invest in large caps, because the volume traded in these stocks is generally large.
Individuals can invest in either, but, small caps and mid caps are stocks that are considered as high beta, which means they tend to fluctuate to a greater degree when the markets go up or down. They are considered as more risky bets, then the large cap stocks.