What is Market Capitalisation?
Market capitalisation (market cap) is the total market value of a company's outstanding shares. It is calculated as:
- Market Cap = Current Share Price × Total Shares Outstanding
Example: If a company has 50 crore shares outstanding and each share trades at ₹200, its market cap is ₹10,000 crore (₹100 billion).
Market cap is the most widely used measure of a company's size in the stock market. It does not equal the company's book value, revenue, or profit.
SEBI's Market Cap Classification for India
SEBI mandates a specific classification for Indian mutual funds, revised annually by AMFI (Association of Mutual Funds in India):
- Large-Cap: Top 100 companies by market cap. Includes Reliance, TCS, HDFC Bank, Infosys, ICICI Bank. Generally ₹20,000+ crore.
- Mid-Cap: Rank 101–250 by market cap. Companies like Persistent Systems, Thermax, Voltas. Generally ₹5,000–₹20,000 crore.
- Small-Cap: Rank 251 and beyond. Generally below ₹5,000 crore. Includes several thousand companies on NSE/BSE.
AMFI publishes this list every six months (January and July). A company can be reclassified up or down based on market cap movement.
Free Float vs Full Market Cap
Full market cap uses all outstanding shares including promoter holdings. Free-float market cap only counts shares available for public trading (excludes promoter-locked shares). Nifty 50 and Sensex use free-float methodology to reflect actual tradeable size.
What Market Cap Tells You About Risk
- Large-cap: Established businesses, lower volatility, lower return potential, high liquidity. Best for conservative investors.
- Mid-cap: Growth companies with moderate risk. Can outperform large-caps over long horizons. Less liquid during corrections.
- Small-cap: Highest growth potential, highest volatility, lowest liquidity. Prices can fall 50%+ in market downturns. Suit experienced investors with long horizons.
Enterprise Value vs Market Cap
Enterprise Value (EV) is a more complete measure of company worth: EV = Market Cap + Total Debt − Cash. It accounts for the fact that a buyer acquiring the company assumes its debt. EV/EBITDA is a common valuation ratio used alongside P/E.
Market Cap and Index Eligibility
Nifty 50 requires companies to be in the top 1.5× the required number by free-float market cap. Large free-float market cap = higher index weight = more passive fund buying = typically more stable price.