What is Market Capitalization? Explained with Indian Examples

If you've ever watched the stock market or heard someone say “Reliance is a big company,” you might wonder, How do we decide if a company is 'big' or 'small'? The answer is Market Capitalization, or simply, Market Cap.

What is Market Capitalization?

Market Capitalization is the total value of a company in the stock market. It shows how much the market thinks a company is worth. Imagine a company is like a big apartment building.

• Each flat in the building is like a share of the company.
• Let’s say there are 1,000 flats in total.
• If the market price of one flat is ₹50 lakh, then what’s the total value of the entire building?

Total Value (Market Cap) = ₹50 lakh × 1,000 flats = ₹500 crore

So, if each share (flat) costs ₹50 lakh and there are 1,000 of them, the building (company) is worth ₹500 crore in total. That ₹500 crore is the Market Capitalization of the company.

How to Calculate the Market Capitalization?

Here is the  formula for Market Capitalization:

"Market Capitalization = Current  Share Price x Total Number of Outstanding Shares"

For example, let's take Infosys as an example:

• Share Price = ₹1,500
• Number of Shares = 420 crore
• Market Cap = ₹1,500 × 420 crore = ₹6,30,000 crore

So, Infosys is worth ₹6.3 lakh crore in the stock market.

Types of Market Capitalization

Here are the types of market capitalization:

• Small-Cap Companies: Their market cap of less than INR 10,000 crore. They are emerging businesses with higher risk. For example: Ujjivan Small Finance Bank, Tejas Networks

• Large-Cap Companies: Their market cap of INR 50,000 crore and above. They are stable and well-established, with lower risk. For example: Reliance, TCS, HDFC Bank

• Mid-Cap Companies: Their market cap of INR 10,000 crore to INR 50,000 crore. They have high growth potential and have moderate risk. For example: Tata Power, Indian Hotels

Why is Market Capitalization Important?

The reason behind the importance of the market cap:

Tells You Company Size

Market cap shows how big or small a company is.

• Large-cap companies are usually old, well-established, and financially strong.
• Mid-cap companies are growing and have the potential to become big.
• Small-cap companies are young or niche, with lots of room to grow, but also more uncertainty.

Just like comparing a small shop with a big mall, you expect the mall to be more stable, right?

Helps Judge Risk Level

• Large-cap companies usually have steady earnings and lower price swings. That means less risk, but also slower returns.
• Small-cap companies can grow faster, but they can also fail. That means higher risk, but higher possible returns.

So, depending on your risk appetite, market cap helps you choose the right company.

Guides Investment Strategy

If you’re a:

• Safe investor, go for large-cap stocks like TCS, Infosys, or HDFC Bank.
• Balanced investor, mix in some mid-cap stocks like Tata Elxsi or Indian Hotels.
• High-risk taker, explore small-cap companies like Tejas Networks or Ujjivan Small Finance Bank.

Market cap helps shape your overall investment game plan.

Helps in Portfolio Diversification

Smart investors don’t put all their money in one type of stock. They spread it across:

• Large-cap (stability)
• Mid-cap (growth)
• Small-cap (potentially high returns)

Knowing the market cap helps you build a balanced portfolio, where risks and rewards are spread out.

Assesses Investment Risk

• Large-cap stocks are less volatile, meaning their prices don’t jump up and down too much.
• This makes them a safer choice for long-term investments (like retirement).
• On the other hand, small-cap stocks can shoot up quickly or crash just as fast.

So, market cap gives you a shortcut to judge how safe or risky a stock might be.

Basis for Stock Market Indices

Big indices like:

• NIFTY 50
• BSE SensexIt

It is made up of companies with a high market cap. Mostly large and mid-cap stocks are included.

This means when the Sensex or Nifty goes up or down, it’s mostly because of what’s happening with large-cap companies.

What Affects Market Capitalization?

Several things can change a company's market cap:

• Stock Price: If the share price goes up, the market cap increases. If it falls, the market cap drops.
• Number of Shares: If a company issues more shares (like bonus or rights issues), the market cap can change.
• Company Performance: Better profits, expansion plans, or a good product can push the price up.
• Investor Sentiment: If people believe the company has a future, they invest more, increasing the share price.

Top 10 Indian Companies by Market Cap

Here are the top 10 Indian companies by market cap:

Company	Market Cap
Reliance Industries Ltd	19,22,693.71
HDFC Bank Ltd	14,82,237.43
Tata Consultancy Services (TCS)	12,50,103.51
Bharti Airtel Ltd	10,63,699.24
ICICI Bank Ltd	10,18,343.69
State Bank of India (SBI)	7,05,044.98
Infosys Ltd	6,26,187.53
Bajaj Finance Ltd	5,55,092.35
Hindustan Unilever Ltd (HUL)	5,51,813.26
ITC Ltd	5,46,992.18

Also read: What Are Equity Mutual Funds? Meaning, Types, and Benefits

Conclusion 

In conclusion, Market Capitalization is just a way to measure how valuable a company is in the stock market. Big company? Big value. Small company? Small value. But size isn’t everything. We hope this blog has been helpful to you.