Market capitalisation, or market cap, is the total value of all of a company's shares at today's price. It answers a simple question: what is the whole company worth, according to the stock market right now?
How to calculate it
Market cap = share price × total number of shares.
Say our made-up company Sunrise Biscuits Ltd has 10 crore shares, and each share trades at ₹200. Its market cap is 10 crore × ₹200 = ₹2,000 crore.
Now take another made-up company, Blue River Paints, with a share price of ₹2,000 but only 50 lakh shares. Its market cap is ₹1,000 crore. Even though each of its shares costs ten times more, Blue River is the smaller company by market cap.
So a high share price doesn't mean a company is big, and a low price doesn't mean it is small or cheap. The price of one share only makes sense together with the number of shares.
Large, mid and small cap
In India, SEBI has set a simple rule that mutual funds use to group companies by market cap:
- Large cap: the 1st to 100th biggest listed companies.
- Mid cap: the 101st to 250th.
- Small cap: the 251st company onwards.
The list is updated regularly, so a company can move from one group to another as its market cap changes.
Smaller companies' share prices often move up and down more sharply, but this is a general pattern, not a rule, and it says nothing about any one company.
What market cap doesn't tell you
Market cap changes every second the market is open, because the price changes. It shows what people are willing to pay today, not how much profit the company makes, how much debt it has, or what it will be worth later. It is one useful number among many.