Balancing your investments.


Hi there,

Remember the topic on market capitalization? Market capitalization is how we measure the total worth of a company. It is the way you categorize companies by size. A simple way of thinking of it is – how much you would pay to buy all the shares of that company available in the market. The term ‘cap’ is the short form of capitalization. General break down by size of companies are:

LARGE CAPS

There is no standard definition of Large Cap and it varies from institution to institution. But as a general rule, if a company has a market capitalization of more than Rs. 5000 Crores, it is considered as a Large Cap. A Large Cap company is normally a dominating player in its industry, and has a stable growth rate. It should be noted that almost all the Large Cap companies from India would be considered as Mid Cap or Small Cap companies in a global scenario, as globally, companies are usually classified as Large Cap if their market cap is more than $10 Billion (roughly Rs. 39,000 Crores).

MID CAPS

If a company has a market capitalization of between Rs. 1000 Crores and Rs. 5000 Crores, it is considered as a Mid Cap.A Mid Cap company is normally an emerging player in its industry. Such a company has a potential to grow fast and become a leader (a Large Cap) in the future. Mid -cap companies can show very high growth rates (in percentage terms), because they have a small base – since their size is small, even a small incremental increase in revenue / profits can be a big figure when expressed in terms of percentage.

SMALL CAPS

If a company has a market capitalization of less than Rs. 1000 Crores, it is considered as a Small Cap. A Small Cap company is normally a company that is just starting out in its industry, and has moderate to very high growth rate. Such a company has a potential to grow fast and become a Mid Cap in the future. If you invest in the small cap markets expect volatility and failure. It is always risky to invest in these kinds of shares. But this doesn’t mean that you should stay off from small caps. Small caps should form part of your portfolio in a limited manner.

See the BSE list of Mid caps and small caps :

Mid-caps – click here
Small caps - click here

REMEMBER…

  • A company’s survival is not guaranteed by size; however, it helps to be a fairly large fish if you are going to swim in the big pond. Small companies or small –caps are risky investments, but can pay big rewards.
  • You should not have too much exposure to small-caps if you are the risk-averse types. Mid-caps and small caps rise faster than large-caps in bull markets, but also fall as rapidly.
  • Large-cap companies are typically more stable with larger, more diversified revenues and have steady predictable earnings. That is not to say that many a large cap has not melted down.
  • Mid-caps tend to have some of the stability of the large caps but also some of the high-growth prospects of the small caps. Mid caps also have institutional ownership but to a lesser extent than large caps do.
  • You should invest your money in a mix of large-caps, mid-caps and small-caps. Large caps would bring stability(steady growth) over long term, mid caps would bring in the acceleration (fast growth) and small caps would bring the excitement( risky investments, but may pay big rewards)
  • A 60% exposure to large-caps , 30% in mid-caps and 10 % in small caps would be a balanced investment strategy, however, what is the right mix depends on an individual’s risk tolerance capacity
  • Investors may note that the total amount to be invested in equities would ideally be 90-your age. The balance should be invested in debt funds

bye for now !!

have a nice day !!

You may like these posts:

  1. Measurement of size- market capitalization
  2. What are Blue-chip shares?
  3. More about Market-caps.

2 Responses to “Balancing your investments.”

Deeanna Guillebeau

September 27, 2011 at 9:30 pm

Nice site Pal. Thanks for this

ajay ghosh

July 24, 2012 at 9:13 am

nice site too very helpful but please include the produre for getting a start in share market

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