Market capitalization is a fairly frequently used word in the stock market , it means the total value in Rs. Of all the shares a company has open for trading , so for example if a company X has total of 1000 shares in circulation and each share is around 2 Rs then the market capitalizatiin will be 2000 Rs , of course this is just an example ,so lets look at stock of Reliance –
Here we can see above that market capitalization of Reliance is Rs. 13,84,251.05 crore and the current market price of Reliance is 2047.15 so from these two things we can determine the number of total shares in circulation.
Market Capitalization = Total number of shares × current price of a share
There are also different types of market capitalization like free float market capitalization which gives us the market capitalization of only the shares that are freely traded , it excludes the shares owned by promoters hence free float market capitalization is generally lesser than market capitalization.
So the question is why one would even bother about market capitalization ? Because it defines the general authencity and market reputation of a stock , Generally the stocks are divided into 3 types based about their size of market capitalization –
- Large Cap ( Large market Capitalization ) – These stocks are generally the ones have market cap of 25,000 crore or more , these are already established companies which everyone know , these companies are household names , They can also be called blue chip companies , these are concidered safe due to their large market cap, stability and reputation .
- Mid Cap ( Medium Capitalization ) – These companies are the ones whose market cap is between approx 5000 cr to 25,000 cr , these are stablished companies , but relatively smaller compared to their counterpart large caps , these can be both risky and safe , investors generally find real gems in mid cap category .
- Small Cap ( Small Market Capitalization ) – These companies are the ones on the lower spectrum of market cap having less than 5000 cr market cap , these include relatively new companies , startups , new joint ventures etc , they can be quite risky because there is always a chance of their failure , so investing and trading must be done with full caution in the small cap sector .