The term ‘cap’ is used a lot in the stock market. Here, ‘cap’ stands for the market capitalisation of a company. A company’s market capitalisation quantifies its value by taking into account its total number of shares and the price of each share in the market. For example, if a company is trading at ₹100 per share, and has 500 outstanding shares in the market, its market capitalisation would be ₹50,000 (₹100 x 500 shares)
There are three main categories of stocks based on their market capitalisations- large-cap, mid-cap, and small-cap stocks. Let’s understand this classification with the following table:
What Are Large-Cap Stocks?
As we have seen in the table above, large-cap stocks are shares of a company with a market capitalisation of more than ₹20,000 Crore. These are stocks of well-established companies that have a dominating presence in the market. Such stocks are among the most sought-after stocks in the market as they have a sound financial background and wide market recognition.
The Securities and Exchange Board of India has identified a list of 100 large-cap companies that are listed on the stock exchanges. This list is updated every six months by the Association of Mutual Funds of India based on share price data at the end of June and December of each year.
What Are The Features Of Large-Cap Stocks?
Some of the key features of large-cap stocks are listed below:
Low risk: As these companies have a sound financial infrastructure and are well-recognised in the market, they are at a lower risk of being drastically affected by market volatility. Large-cap companies do not stand the risk of dissolution and can continue their operations even during extreme market conditions.
Moderate returns: While such stocks carry a low risk, they also generate moderate returns. Since these companies are already well-established and are financially mature, the value of their stocks may not appreciate as much as mid-cap and small-cap stocks. Most of the returns from large-cap stocks are derived from their dividend component.
Transparent: Since these companies have been in business for longer, data about their operations and financial activities are easily available to investors.
Expensive: Large-cap stocks, as compared to mid-cap and small-cap stocks, are expensive as they enjoy a higher demand in the market.
Liquid: Since they have a higher demand, such stocks are highly liquid as buyers for large-cap stocks are generally available readily.
Dividend: Large-cap stocks are known to increase their value over time and provide investors with regular dividends.
Who Should Invest In Large-Cap Stocks?
You should consider investing in large-cap stocks if:
You are a beginner at investing in stocks. This is because large-cap stocks are easily discoverable, financially stable and have low risk as compared to mid-cap or small-cap stocks.
You are a risk-averse investor. Large-cap stocks have the potential to provide stable returns without exposing you to high risk.
You are looking for a steady income. Most large-cap stocks provide regular dividends to their investors.
You wish to add diversification, stability, and liquidity to your stock portfolio.
You have a long-term investment horizon and prefer investing in stocks with low volatility.
In Conclusion
Including large-cap stocks in your investments provides you with the required balance in your portfolio. However, you must research about each stock before investing and understand the risks involved in each investment. You may also consider consulting a financial advisor who can review your investments and help you make the right decision.
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