Large Cap, Mid Cap and Small Cap: Which Stocks Should I Buy
While you go through the business columns of any newspaper, you will find all these terms, Large cap, Mid cap and Small cap stocks! What are they? Which stocks should I invest in? All these questions arise but the answers, most of us do not know. Let us try to find out what is this classification and what should be our strategy for investment in these.
These classification is made as per the market capitalization of the stocks. So we must know what is market capitalization first. To define simply, market capitalization is nothing but the value of a company in terms of its shares, ie, if you buy all the shares of the company, the amount which is costed for you is the market capitalization of the company.
If any company's market capitalization is worth of below Rs.100 crores it is a small cap company. If the market capitalization of a company is worth of above Rs.100 crores but below Rs.2000 crores, it is mid cap company and the company which has market capitalization above .Rs.2000 crores is a large cap company.
But where we have to invest? If you are cool person who does not take much risk but want to enjoy the benefits of investing in a stock market, you can opt for the large cap stocks. The stocks, Reliance Industries, Infosys, HDFC Bank, Tata Steel etc, come under this category. These stocks are generally blue chip stocks and their value is always at higher premium and you need to invest at higher price. But the returns are also good. Whenever there is a big fall of the markets, you can invest in these stocks in a staggered manner, so that your investment in these stocks will be cost-effective.
Mid cap stocks generally are defined as future blue chip or large companies. There are a lot of Mid cap companies like Educomp, Crompton Greaves, Bank of Baroda, Welspun Gujarat etc, which fetches you money in a continuous bullish trend of the market. If you have patience you can create good amount of wealth through these stocks but at the same time, the risk in these stocks is higher. Whenever there is a big crash, these stocks are mostly the victims and the capital is eroded very sharply.
Example for the small cap stocks are South Indian Bank, Godavari Power, Dishman Pharma, Kesoram Cements etc., where the capitalization of these stocks is very limited but in these stocks also you can make money. These stocks tend to dip steeply during the fall of the markets but recovers very lately. So you must have patience to invest in these small cap stocks.
If you study the fundamentals of the company well, the market capitalization is not so important. But in these days of volatility, where every single paise is important for us, you need to go through all kinds of terms of the market and act according to the movement of the same, so as to play a safe game and earn decent returns on the money invested.
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