Market cap

Market capitalisation moves every trading day with the share price, so it measures the market's current view of the equity, not the value of the business on paper. It counts only the equity. A company's debt and cash are not part of it, which is why enterprise value is used to compare businesses with different balance sheets.

Size buckets

In India, SEBI's categorisation for mutual funds is the standard reference. Companies ranked 1 to 100 by full market capitalisation are large caps, those ranked 101 to 250 are mid caps, and the rest are small caps. AMFI publishes the updated list every six months.

Full and free-float market cap

Full market cap counts every share. Free-float market cap counts only the shares available for trading, leaving out promoter holdings and other locked-in stakes. Indices such as the Nifty 50 weight their constituents by free-float market cap, so a company with high promoter holding carries less index weight than its full market cap suggests.

How to use it

Market cap is the starting point for most valuation ratios. P/E is market cap divided by net profit, and price to book is market cap divided by net worth. It is also a useful sense check: ask whether, if you had this much money, you would buy the whole business, and compare what the same sum would buy in other companies.

Where to find it

Exchange websites and research platforms show it directly. To work it out yourself, take the latest share price and the total number of shares from the most recent shareholding pattern.

Common mistakes

• Calling a stock cheap because its share price is low. A ₹50 share can belong to a far more expensive company than a ₹5,000 share; only market cap compares them.
• Using market cap to compare companies with very different debt. Use enterprise value instead.
• Using an old share count. Buybacks, bonus issues, splits and new issues all change the number of shares.

Questions investors ask

Does a bigger market cap mean a better company? No. It means the market values the equity more highly today. A large company can be overvalued and a small one undervalued.

Why do large caps often move less than small caps? They are usually more established, more widely held and easier to trade, so a single piece of news has a smaller effect on the price.