Difference between Large caps, Mid caps

Difference between Large caps, Mid caps and small caps: While investing in the equity in stock market, it is very important to know various categories of stocks. One has to be clear as to how much weight he should give to each of large, mid and small cap stocks in his investment portfolio. As the name suggests, these are different categories of stocks classified based on cap i.e. Market capitalization of that stock.

Market capitalization is the total market value of the shares outstanding in the market.

Market capitalization = Current price of the stock x Total number of shares outstanding

Stocks in the market are categorized into 3 types on the basis of their market cap. They are

1. Large cap stocks:

Stocks of the large and well established companies are large cap. The movements in the share       prices of these stocks could alone influence the whole market. Example: TCS, Infosys, RIL

2. Mid-cap stocks:

These are the representatives of mediocre companies. They are ranked between large and small caps in terms of full market cap ranking.

3. Small cap stocks:

These are the stocks that find their places at the bottom in terms of full market capitalization ranking. However, they are relatively less risky and mostly consist of startups / companies in their early ages. If carefully chosen, small caps in long-run can yield very good returns.

There is no standard market cap cutoff for each category mentioned above. However, in this post, we are giving the exchange specific classification.

Bombay Stock Exchange (BSE) - Large Vs Mid Vs Small caps:

Bombay Stock Exchange (BSE) categorizes companies into market cap segments based on the 70 – 15 – 15 rule with a buffer ±5. As per BSE’s methodology, the companies with average daily total market capitalization are sorted in descending order (Highest to least) and the classification is as below:

Large cap stocks:

The companies (having ranked in descending order) whose market capitalization accounts for the 70% of the total market cap of the companies traded on BSE are considered as large cap stocks.

Mid cap stocks:

Companies forming the next 15% of the total market cap are mid cap stocks

Small cap stocks:

Stocks that are in the last 15% in the market cap ranking are small cap stocks.

National Stock exchange (NSE) – Large Vs Mid Vs small caps:

In case of National stock exchange, Companies are ranked based on both average daily turnover and average daily full market capitalization. Out of the top 500 companies, classification would as below:

Large cap stocks:

Companies that form part of the first 100 highest rankings are considered as large cap stocks and these will be used for NIFTY 100 construction.

Mid-cap stocks:

Stocks of next 150 highest companies are categorized into mid-cap stocks. NIFTY Midcap 150 is constructed using these stocks.

Small-cap stocks:

Stocks that are in the next 250 rankings are small cap stocks. NIFTY Small cap 250 index is constructed based on these stocks.

Difference between Large caps, Mid-caps

Different market cap categories in the United States:

Category Classification
Large cap stocks These are the stocks of the Companies with market cap of $10 billion or above. They are very stable and dominant in their industry.
Mid-cap stocks These are the stocks of the Companies with market caps between $2 billion and $10 billion
Small cap stocks Companies with market caps that are less than $2 billion are small cap stocks