The stock markets are a shifting kaleidoscope of ups and downs and are often difficult to peg down. Having said that, equity markets offer investors myriad opportunities to preserve and grow their wealth which come in various shapes and sizes. However, in investing, size does matter. In equity market parlance the size of a company is synonymous with its market capitalisation.
According to SEBI guidelines, the top 100 companies in terms of market capitalisation are categorised as large cap companies. The next 150 are categorised as midcap companies and the 251st company and below are categorised as small cap ones. It is important to be cognizant of this because investing in a company of a certain size brings with it unique opportunities and risks. The advantages and drawbacks of large-cap investments are different from that of small and midcap investments. Consequently, the value that each of these investments add to a portfolio is differentiated and unique. According to Vinay Khattar, Head, Edelweiss Investment Research, “The investment environment is challenging and is peppered with constant volatility. Investors should stick to safety and continue looking for value. After the recent sell-off, value is beginning to emerge in select large cap stocks, especially in the private banking and IT sectors.”
The Ongoing Debate: Large Caps or Mid and Small Caps?
Large cap stocks generally belong to well-established companies that have a strong market presence. According to Nitin Bhasin, Head of Research at Ambit Capital, “Quality is back in flavour and so are large caps.”
Mid cap companies on the other hand, are generally those that are up and coming, and are expected to both grow and increase profits, market share and productivity. They are usually in the middle of their growth stage, which, lends them higher risk but also increases their profit potential.
There are various factors that differentiate large cap stocks from their mid and small-cap counterparts, and contribute to their relative benefits.
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