When investing in stock market, we often come across the term "Market Capitalization" which plays a vital role when investing in stocks.
Market Capitalization is the outstanding shares of a company multiplied by the current share price of a company.
Say for example if a ABC company has an equity capital of Rs 200 crores, and assume this comprises of 2 crore shares of Rs 10 face value. Then we can say that the outstanding shares of the company are 2 crore shares. Let's assume that the current share price of the company is Rs 100.
Then we can say that the market capitalization of the company is Rs 200 crores.
Here are 5 Must Know points
1) The formula to calculate market capitalisation is
Market Capitalization = Current market price x outstanding shares
=Rs 100*2 Crore
=Rs 200 Crores
2) The companies which has large equity base which often runs into billion are called as Large Cap stocks.
ITC, Reliance Industries, Hindustan Unilever and Tata Consultancy Services are some of the large cap companies in India. Such large capitalization stocks are mostly preferred by institutional investors when they decide on investing.
3) Stocks whose value is neither too high nor too low are called as mid cap stock. ABB, Century Textiles, Bajaj Finance, Godrej are some examples of mid cap stocks.
4) Market cap in small cap stock is much lower then the large or mid cap.
They are very volatile and stocks tend to move very rapidly up as well as down.Bajaj Capital, HDIL, Greaves Cotton are stocks that form a part of the small cap stocks.
5) Any price variation such as when the company declares a bonus, rights issue or if there is a merger or acquisition with another company, market capitalization will undergo a change.
In India, Sensex is based on free float capitalization method, while, the Nifty is based on outstanding shares capitalization method
Note: Free-float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market.