Market capitalization, or m-cap, is the market value of a publicly-traded company’s outstanding shares. Large-cap stocks, basically stocks with a large number of shares in circulation and a share price that gives a high capitalization or influencing position in the market, set the tone for the Indian stock market. They may be considered the drivers of the indices.
However, the price of large-cap stocks does not fluctuate much; they drive the market indices with the sheer volume of shares. Even a small price change impacts the larger index. Companies with the highest market capitalization often provide stability to an otherwise volatile equity market.
There are numerous other parameters like profit margins, sales, dividend payout ratio, and debt-equity ratio, which we can use to analyze companies, but market capitalization as a parameter is the most common among the lot to assess the value of a company.
This article covers:
Understanding market capitalization
The aggregate value of outstanding shares of a company multiplied by the current share price gives the company’s market capitalization.
M-Cap = OS x SP
M-Cap is market capitalization
SP is the share price
OS is outstanding shares
Let’s find out the market cap of SBI using the above formula:
On 18th Jun 2021, SBI’s share price closed trading at Rs 412.9.
The share price of SBI = Rs 412.9
Outstanding shares of SBI = Rs 8.925 cr
Applying the formula, M-Cap = 8.925 cr x Rs 412.9
Therefore, the market capitalization of SBI on that day = Rs 3,68,497 cr.
It is imperative to remember that market capitalization is very dynamic, and changes by the second. It has a direct correlation with the traded price of the stock.
While the number of outstanding shares in the formula for market capitalization may not change unless the company decides to issue more shares, the stock price component is extremely volatile. Based on market capitalization, companies are bifurcated into large, mid, and small-cap companies.
Large-cap companies: Having a market cap of Rs 20,000 cr or more
Mid-cap companies: Having a market cap between Rs 5,000 cr and 20,000 cr
Small-cap companies: Having a market cap of less than Rs 5,000 cr
Large-cap stocks are an ideal pick for conservative investors looking to stay invested in the market for stable returns over the long term. Small-cap stocks are more suited for aggressive investors having a decent risk appetite, looking for short-term gains.
Top 10 companies by market capitalization in India
1. Reliance Industries Limited
- Market cap: Rs 14,34,066.94 cr
- Stock price: Rs 2,225.05
Reliance Industries is on a roll; they have ticked all the boxes right. Currently, they have the bragging rights for being one of the most valuable companies in the world with their large market capitalization of over Rs 14 lakh cr. Headed by Mukesh Ambani, RIL has diversified business parallels with telecommunications, energy, petrochemicals, textiles, and the retail sector. Reliance Industries alone accounts for nearly 5% of the revenue of the government of India from customs and excise duty.
2. Tata Consultancy Services
- Market cap: Rs 12,19,577.24 cr
- Stock price: Rs 3,297
TCS is the largest information technology company in India as per market capitalization. Headquartered in Mumbai, TCS has 72.19% of promoters holding. It’s a subsidiary of the Tata Group and has operations in 46 countries.
3. HDFC Bank
- Market cap: Rs 8,16,587.81 cr
- Stock price: Rs 1,479.85
Established in 1994, HDFC Bank is one of the largest private sector lenders in the country. The net NPA to book value of HDFC Bank is only 2.24% which market analysts and investors consider as good valuation that speaks volumes about the strong business model of the bank. For reference, giants like SBI and PNB are struggling hard to keep the ratio below 10%. The company has expansive operations in finance, insurance, consumer banking, wealth management, and private loans.
- Market cap: Rs 6,41,108.34 cr
- Stock price: Rs 1,504.5
After TCS, Infosys is the second-largest multinational information technology giant in the country. It was founded 39 yrs ago in 1981 by NR. Narayana Murthy. The company offers outsourcing, managed services, and consulting services. Though the low dividend yield of 1.73% is slightly discouraging, Infosys is still higher than TCS. The stock is nearing its all-time high after posting an upside move of 124% in one year (as of 18th Jun 2021).
Can you imagine that this IT giant’s initial public offer was not fully subscribed even after being made available at Rs 95 in 1993? Later, it was bailed out by Morgan Stanley that picked up 13% of equity.
5. Hindustan Unilever (HUL)
- Market cap: Rs 5,82,874.25 cr
- Stock price: Rs 2,480.75
Founded in 1933, HUL is a subsidiary of Unilever, an Anglo-Dutch company. HUL has a very firm presence in the Indian consumer goods market. It caters to products in domains such as foods, beverages, water purifiers and personal care products. In 2020, the company reported a handsome revenue of Rs 40,415 cr and enjoyed a stronghold in India.
The valuations of the company seem expensive with a PE ratio of over 70. But then, almost all the companies in the FMCG sector appear to be costly when PE is looked at in isolation.
6. Housing Development Finance Corporation Limited (HDFC)
- Market cap: Rs 4,49,177.08 cr
- Stock price: Rs 2,487.65
Though having a significant presence in asset management, banking, insurance, realty, deposits, and education loans, HDFC is recognized as the biggest lender of housing finance in India. Hasmukhbhai Parekh, who laid the foundation of this company, wanted to solve the crisis of proper housing for the middle and lower class. Founded in 1977, HDFC’s reach spans 9 countries, including the United Kingdom and Singapore. Banking on its 43% returns in a year, the stock has outperformed both sector and Sensex by over 50% as of 18th Jun.
7. ICICI Bank
- Market cap: 436,390.78 cr
- Stock price: Rs 630.25
This privately-owned financial institution has percolated the Indian market within a few years. Founded in Vadodara, ICICI Bank offers a variety of banking services to both retail and commercial clients. In addition, through its subsidiaries and sister concerns, ICICI Bank has explored the sectors of asset management, investment banking, life insurance, and venture capital.
For the quarter ended Mar 2021, the company posted nearly 260% increase in net profit against the corresponding quarter in the previous year. The better earnings is attributed to a significant rise in market share, along with tailwinds from its strongly growing network presence – digital and physical. The stock is in an uptrend, nearing its 52-weeks high (as of 18th Jun 2021).
8. State Bank of India
- Market cap: 3,68,407.96 Cr
- Stock price: Rs 412.80
SBI is the largest public sector bank in India that accounts for nearly 23% of the market share by assets and a 25% share of the total loan and deposits market. The 43rd-largest bank in the world has shown some resilience as it bounced back from its 52-week low of Rs 175 and is seen bounding towards a higher price led by investor interest and a favourable investment environment.
In the meantime, it outperformed the sector and Sensex by 51.35% and 79.57%, respectively, in a year. In the last quarter of the previous financial year, SBI registered its highest ever profit after tax at Rs 6,450.75 cr, an 80% jump y-o-y.
9. Bajaj Finance
- Market cap: 3,67,425.99 cr
- Stock price: Rs 6,087.30
A non-banking financial company (NBFC), Bajaj Finance primarily services both retail and commercial customers. It also provides asset management, wealth management, and insurance services. The profit after tax has grown by 42% in the quarter ended Mar 2021, and the company has yielded 102% returns in a year.
10. Kotak Mahindra Bank
- Market cap: 3,49,019.23 cr
- Stock price: Rs 1,760.60
In Feb 2021, taking forward the domination of private sector banks, Kotak Mahindra became the third-largest private sector bank by market capitalization. Kotak Mahindra Bank offers services related to banking products and other financial services. It also enjoys a significant presence in life insurance, wealth management, personal finance, investment banking, general and insurance.
Note: Market capitalization of these companies is subject to constant fluctuations owing to the change in their share prices.
Market capitalization is a measurement of the market value of the company. SEBI has defined the levels that determine if a company is a large-cap, mid-cap or small-cap company. Market capitalization is directly proportional to the share price of the stock; that is, it rises and falls in line with the traded price of the shares. Share prices of large-cap stocks fluctuate the least and shares of small-cap companies are very volatile. But the sheer market size of the large-cap companies makes them influential to the direction of the market movement.
These well-established companies that have been in existence for a long period have strong market dominance and are considered to be investments that are worth the value in comparison to companies from other market caps.