Groww Digest

6 Day Course

Theme: market capitalisation

Nov 20 to Nov 26 2023

6 Day Course is a part of our newsletter

series, Groww Digest - all things personal
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Day 1: Monday
6 Day Course | Theme: market capitalisation

Market capitalisation is also called m-cap or

market-cap.

M-cap is the total value of a company.

Formula:

M-cap = share price x total number of shares

Example:

Company ABC has a total of 1,00,000 shares. The

share price of each share is Rs 992.

So the m-cap of ABC is:

1,00,000 x 992 = 9,92,00,000 or Rs 9.92 cr.

When people say that XYZ company is worth $22

billion, they usually mean XYZ’s m-cap is $22
billion.

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Day 2: Tuesday
6 Day Course | Theme: market capitalisation

The m-cap of companies keeps changing.

M-cap is directly linked to the share price of a

company. And the share price changes when the stock
markets are open.

A higher share price does not always mean the m-cap

of a company is higher. It depends on the number of
shares also.

Example:

Company ABC

Price: Rs 20 per share. Total shares: 2,00,000

Therefore, m-cap = Rs 40,00,000

Company XYZ

Price: Rs 22 per share. Total shares: 1,00,000

Therefore, m-cap = Rs 22,00,000

Company XYZ’s share price is higher. But if we

calculate the m-cap, company ABC is actually bigger.

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Day 3: Wednesday
6 Day Course | Theme: market capitalisation

M-cap is used to categorise companies as big,

medium, and small.

The 100 biggest companies in India (by m-cap)

are called large-cap companies (large
capitalisation companies).

Similarly, 101-250 biggest companies are called

mid-cap companies. And the remaining are
called small-cap companies.

As companies’ share price changes with time,

their m-cap also grows/falls.

So the list of 100 biggest companies is always

changing. Similarly for mid and small cap also.

There is even a micro-cap category — companies

other than the 500 biggest companies.

It is not recognised officially though.

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Day 4: Thursday
6 Day Course | Theme: market capitalisation

M-cap is not entirely linked to current profits and

revenues.

Company ABC: Rs 2000 cr revenue, Rs 400 cr profit

Company XYZ: Rs 4000 cr revenue, Rs 800 cr profit

Company ABC’s m-cap is Rs 20,000 cr.

What will XYZ’s m-cap be? Rs 40,000 cr?

It seems like an easy guess — but that is not how it

works.

Company XYZ’s m-cap could be very different (lower or

higher) based on the company’s future.

If a company seems like it will grow a lot more in the

future, investors buy more shares of it — sending its
share price and m-cap up.

Further, companies belonging to different industries

can have very different m-caps.

This is also why the PE ratio of different companies is

different.

Page: 5
Day 5: Friday
6 Day Course | Theme: market capitalisation

We spoke about large, mid, and small-cap

companies (ranked based on size).

For example: 100 biggest companies are called

large-cap stocks, 101-250 are called mid-cap
stocks, and so on.

There is one more way of categorising.

In this, we categorise the companies as large,

mid, and small based on the actual m-cap value
(rather than their ranking).

Companies with m-cap more than Rs 20,000 cr

are also called large-cap.

Companies with m-cap between Rs 5,000 cr and

Rs 20,000 cr are also called mid-cap.

Companies with m-cap below Rs 5,000 cr are

also called small-cap.

It varies. There is no hard and fast rule.

Page: 6
Day 6: Sunday
6 Day Course | Theme: market capitalisation

We’ve reached the end of this week’s course

that started on Monday.

Here’s a test you should take. Get pen and

paper!

Question 1:
m-cap = share price x total number of shares.

-True
-False

Question 2:
Does m-cap of a company remains constant?

-Yes
-No

Page: 7
Day 6: Sunday
6 Day Course | Theme: market capitalisation

Question 3:
A higher share price always mean the m-cap
of a company is higher.

-True
-False

Question 4:
Companies with m-cap between Rs 5,000 cr
and Rs 20,000 cr come under?

-large-cap
-mid-cap
-small-cap

Question 5:
Is m-cap is directly linked to the share price of
a company?

-Yes
-No

Page: 8
Day 6: Sunday
6 Day Course | Theme: market capitalisation

Answers:

Q1: True
Q2: No
Q3: False
Q4: mid-cap
Q5: Yes

Page: 9
 That’s it for this week!

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See you next week!

—Groww Digest Team

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