What are the Differences Between Large-Cap, Mid-Cap & Small-Cap Stocks?

If you invest in the stock market, you must have come across terms like large-cap stocks, mid-cap stocks and small-cap stocks. These stocks are different from each other in terms of market capitalisation, scope of growth and risk. 

Large-cap stocks provide a safety net, while mid-cap stocks have stability and expansion scope, and small-cap stocks are the underdogs in the market with a massive growth potential.

This article provides interesting insights into the differences between large-cap, mid-cap and small-cap stocks to make your investment journey easier. Let’s dive in.

What is Market Capitalisation?

Before we dig deeper into the features of large-cap, mid-cap and small-cap stocks, let’s first understand the concept of market capitalisation.

The stock market categorises Indian stocks based on market capitalisation. It is the market value of a company which is calculated by multiplying the total number of outstanding shares of the company with their current market price.

For example: Currently, the market price of a company X is Rs 500 and the total number of outstanding shares of this company is 50,000. So, this gives us Rs 2.5 crore as the market capitalisation of company X. 

Based on the market capitalisation or market cap, the stocks are divided into the already discussed three categories i.e. large-cap, mid-cap, and small-cap stocks.

Large-cap stocks are ranked 1st to 100th on the stock exchanges in terms of market capitalisation while mid-cap stocks are ranked 101st to 250th. Lastly, small-cap stocks are ranked from 251st and beyond. 

Now, let’s understand the specifics of each category in detail.

What Are Large, Mid, and Small-Cap Stocks?

Large-cap Stocks

As the name suggests, large-cap stocks are companies with a high market capitalisation. These companies have a market capitalisation of Rs 20,000 crore or more. They are ranked as the top 100 companies in the stock market. These are some of the biggest companies and have a well-established track record. 

Here are some common features of large-cap stocks:

• Market leaders with a long history of being in business
• Strong brand recognition, well-established in their sectors
• Stable earnings growth, financial health
• Less volatile during market fluctuations vs mid-cap and small-cap stocks
• Less impacted by economic and market downturn
• Pay regular dividends to shareholders and investors
• Suitable for investors with a low-risk appetite

Mid-cap Stocks

In terms of market capitalisation, mid-cap stocks fall between large-cap stocks and small-cap stocks. They have a market cap ranging from Rs 5,000-20,000 crore. Mid-cap stocks are ranked from 101st to 250th in the stock market. These companies are generally in their expansion phase and have a higher scope of growth than large-cap stocks.

Here are some common features of mid-cap stocks:

• Established companies with room for growth and expansion
• Scope to become large-cap in future on consistence performance
• Higher scope of growth and capital appreciation than large-caps
• More volatile than large-cap stocks but lesser than small-cap stocks
• Carry higher risk and lower volatility than large-caps stocks
• Suitable for investors with moderate risk profile

Small-cap Stocks

The majority of the stocks in the Indian market are small-caps. They are ranked 251st and beyond. Small-cap stocks have a market capitalisation of less than Rs 5,000 crore. They are less established companies in the early stages of growth. Small-cap stocks have a scope of huge capital appreciation but also carry higher risks. 

Here are some common features of small-cap stocks:

• Younger firms in their early phase of development and expansion
• Presence in niche, regional or emerging markets 
• Higher scope of growth and capital appreciation for investors
• Higher risk and volatility than large-cap and mid-cap stocks
• Lower liquidity; buying and selling stocks can be difficult
• Vulnerable to stock market downturns, may take longer to recover
• Perform better when the economy is on an uptrend
• Limited analyst coverage and financial information
• Suitable for investors with a high-risk appetite

Key Differences Between Small-cap, Mid-cap, and Large-cap Stocks

Here is a look at the differences between large-cap, mid-cap and small-cap stocks on key metrics:

Who Should Invest In Large-cap, Mid-cap & Small-cap Stocks?

Large-cap Stocks: 

• Investors looking for long-term investment options
• Investors with large capital but low-risk appetite

Mid-cap Stocks:  

• Both long-term and short-term investors
• Moderate risk-takers

Small-cap stocks:

• Investors looking for aggressive returns
• Investors with a high-risk appetite and good research skills  

Indices to Track Large-Cap, Mid-Cap and Small-Cap Stocks

If you want to track the performance of large-cap stocks, mid-cap stocks small-cap stocks in the Indian stock market, then you can follow these indices:

Large-Cap Indices

Nifty50: This is the flagship index of the National Stock Exchange which tracks the 50 largest listed companies

S&P BSE Sensex: This index on the Bombay Stock Exchange (BSE) tracks the top 30 companies

Mid-Cap Indices

Nifty Midcap 100: This index is used to track the next 100 companies on NSE

S&P BSE Midcap: This index on BSE tracks mid-cap stocks and is used as an indicator of their performance

Small-cap Indices

Nifty Smallcap 100: This index tracks the performance of 100 diversified small-cap stocks on NSE

S&P BSE Smallcap: This index is a benchmark for the small-cap stocks on BSE

Conclusion

All three categories of stocks - large-cap, mid-cap and small-cap have their benefits and risks. Investors must pick the stock after analysing their time horizon, risk profile and investment objective. 

While large-cap stocks can offer stability and dividend income, mid-cap and small-cap stocks offer scope for strong capital appreciation and growth. Investors can also look to add stocks from each category to balance the risk and reward ratio of their portfolios.

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