Market capitalization-Which companies in 2023 qualify to be in my portfolio?

market capitalization

Which companies qualify to be in my portfolio? What should be weightage of stocks in portfolio according to market capitalization. Fundamental analysis Part -1

As a stock investor, when I started my journey the first question that came into my mind was that, there are so many companies that are being listed in NSE and BSE. which companies to invest in?  There are around 4000 or more than those companies that are being listed, and several IPOs are launched on monthly basis. Tracking so many companies itself is a tedious task that can take a lot of time.  it is very difficult for somebody in a job to track all the companies in the market.  So what to do?

 what if I have a set of Companies,  maybe 20, 50,100,  which are the best i.e. Profitable and growing, and keep giving me opportunities to invest every then and now? Ideally, A person needs a chance to invest either on monthly basis or annually.  

Companies on the basis of market capitalization

Market capitalization or m-cap refers to the total value of all the company’s shares.

 M cap = number of shares X  current market price of the shares.

formula market capitalization

It refers to the worth of a company as determined by the stock market, That means, today if you want to buy the entire company then what would be its value?

 suppose a company with 2 crore shares, each priced at 100 INR, then the market capitalization of that company would be 200 crores INR.

  1. Large-cap companies- top 100 companies listed in NSE are termed as large-cap companies. According to today’s valuation, the company is worth more than 47000 crores INR.Example- Hindustan Unilever, HDFC Bank,  Titan,  Nestle India, Bosch, etc.
  2.  Mid Cap companies- the next 150 companies are termed Mid Cap companies. their companies with worth somewhere between 16000 crores to 47000 crores INR. Colgate Palmolive, HDFC AMC, Voltas, Relaxo, etc.
  3.  small-cap companies- all other companies come under Small cap companies. Example Apollo Tyres, Radico Khaitan, CDSL, EaseMyTrip, etc.

Advantages of investing in large-cap companies

  1. These stocks are more stable and mature.
  2.  As a result, Large cap stocks have low volatility
  3. They have less growth potential and may lag the broader market in Bull Run.

Advantages of investing in Mid Cap companies

  1. Mid Cap stocks have good growth potential for the long term.  Investors can make handsome returns if they invest in Mid Cap companies in the long run. 
  2.  these stocks are riskier than large-cap stocks because the companies are still in the growth phase.
  3. Better returns than large-cap companies in the long run 

Disadvantages of investing in Mid Cap companies

  1. Mid Cap stocks give less return than small-cap stocks.
  2. During crisis,  when the market is going down,  Mid Cap stocks plunge to more depths. 

       Advantages of investing in small cap companies

  1. Small cap stocks have experiential growth potential.
  2.  they can give high returns if the right stocks are picked from the small-cap segment.
  3. Not followed by analysts,  giving a huge opportunity to wise investors To grow the investments quickly.

       Disadvantages of investing in small cap          companies

  1. Small cap stocks are highly risky and volatile.
  2.  these stocks are not suited for all investors and beginners. these stocks are only for those who have high-risk appetites.
  3. These stocks Hardly pay any dividend
  4. Finding the best stock in the segment needs a lot of time and research
  5. Timing to buy and sell the small-cap stock is very critical and needs a lot of expertise.

Now, when we know about the classification of companies, Advantages, and disadvantages of investing in these kinds of Companies. Now what?

According to our goals, we can assess how much weightage of each sector we could have in our portfolio. Here is a model example, you can make your own.

Type of investorLarge cap stock weightageMid cap stock weightageSmall cap stock weightage
Long term investor50%30%20%
Aggressive investor40%30%30%

In upcoming blogs we will learn fundamental analysis, technical analysis, strategies, etc.

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Disclaimer- All investments and trading in the stock market involve risk. Any decision to place a trade in the financial markets, including trading in stock should only be made after thorough research. Trading strategies or related information mentioned in the article is for informational purposes only. Use your due diligence before investing.

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