Market Trends and Their Impact on Small Cap, Mid Cap, and Large Cap Stocks
Market Trends and Their Impact on Small Cap, Mid Cap, and Large Cap Stocks
Understanding Market Capitalization
To understand what small cap, mid cap, and large cap stocks are first we must understand what is market capitalization.
Market capitalization also known as market cap, it is calculated as number of share outstanding multiplied by share price of the stocks. This help companies differentiate into:
1. Large Cap Stocks: Companies who has market capitalization of over INR 20,000 crore. The are well established and has investor confidence.
2. Mid Cap Stocks: Companies with a market capitalization between INR 5,000 crore and INR 20,000 crore.
3. Small Cap Stocks: Companies with a market capitalization of below INR 5,000 crore.
Market Trends and Their Influence
1. Bull Markets: A bull market, means the prices of the stocks are rising this helps to increase the confidence among the different type of investors. In India, during a bull market, large cap stocks usually provide stable, consistent returns because of their already established nature and investor confidence. Mid cap stocks can outperform large caps as investors seek higher returns. Small cap stocks which are riskier as compared to above stocks can see huge growth due to increased speculation.
2. Bear Markets: A bear market is opposite of that Bull market which means prices of the Stocks starts to fall as there is fear among the investors. In such situations, large capitalization stocks are considered safer as they belong to companies with good financials and established market. Mid-caps may see moderate volatility, while small caps will suffer the most due to their higher Beta that is measurement of volatility to market.
3. Economic Policies and Reforms: Government policies affect the Indian stock market significantly. Policies such as Monetary Policies, FDI or FPI cash Flows, Trade and Currency Policies, Fiscal Policies, Legal and Environment Factors.
4. Global Events: When the global event occurs,