To understand the definition of the above, you first need to understand what cap or market capitalization actually means.
Market capitalization of a company is arrived at by multiplying the number of outstanding shares of a company with the market price.
So, if a company has one lakh shares outstanding and the market price of the stock is Rs 10, we say that the market cap is Rs 10 lakh or 1 million.
What Are Large Cap Stocks?
Large cap stocks in India are stocks that have very large capitalization that often runs into billions of rupees.
These include the likes of ITC, Reliance Industries, Hindustan Unilever, Tata Consultancy Services and so on.
Large caps may not necessarily begin as large caps. They may begin as small caps and then become large caps as the share price rises.
In the US a large cap company is defined as one that has a capitalization in excess of $10 billion.
What Are Mid Cap Stocks?
In India, where the capitalization is neither too high nor too low, we describe the same as a mid cap stock. For example, ABB, Century Textiles, Bajaj Finance, Godrej are all examples of mid cap stocks.
These stocks tend to have larger volatility as compared to large cap stocks. They move higher faster then the broader markets and lower as well faster.
What are Small Cap stocks?
Small cap stocks are stocks that move very rapidly up as well as down. Their market cap is much lower then the large or mid cap. They tend to be very volatile and most of the time their beta could be more then one.
If you have a penchant for risk, then high beta small cap stocks is the place to be in. In India stocks like Bajaj Capital, HDIL, Greaves Cotton are among the stocks that form a part of the small cap stocks.
Of course, there are a host of other stocks that form the small cap index. You can visit the BSE and NSE to check for the same.
Should you invest in the same?
Investors would always like to know whether one should invest in these stocks. As mentioned earlier quality small and mid cap stocks could easily grow into becoming large cap stocks.
On the other hand if the stock price of a good large cap stocks fall, and its capitalization gets eroded it could become a mid or small cap stock.