scorecardresearchSmall-cap stocks vs large-cap stocks: What's the difference and which is safer?

Small-cap stocks vs large-cap stocks: What's the difference and which is safer?

Updated: 14 Dec 2021, 03:30 PM IST
TL;DR.

Let’s take a look at the differences between large-cap and smallcap stocks and find out which one is safer

Let’s take a look at the differences between large-cap and smallcap stocks and find out which one is safer

Let’s take a look at the differences between large-cap and smallcap stocks and find out which one is safer

Large-cap and smallcap are two different categories of stocks based on market capitalisation. While largecap are stocks that have a higher market capitalization of over 20,000 crore, small caps are stocks with a market capitalisation of less than 5,000 crore.

The market capitalisation of a company at any moment is determined by multiplying its total number of shares with its stock price at that moment.

Largecap

Large Cap stocks are basically those stocks that have a market capitalisation of over 20,000 crore or on a rank basis, the top 100 stocks of NSE or BSE are classified as large-cap stocks. These are firms that are already well established and are very popular among investors.

Smallcap

These stocks have a m-cap of less than 5,000 crore and are ranked from the 251st position onwards on the exchanges. These include small companies that are still developing. Such companies mostly go unnoticed by most investors.

Large Cap versus smallcap

Volatility: Large Cap firms are generally less volatile and hence less risky. These are good bets for risk-averse investors. Smallcaps on the other hand, are very risky compared to large caps. They are more volatile to market fluctuations and see a steep rise or fall depending on the market condition. Investors with a high-risk appetite generally prefer smallcap stocks.

Share prices: Large Cap stocks have higher share prices which makes them in large quantities expensive for new investors. Meanwhile, share prices of smallcap stocks are lower making it easier for investors to buy more quantities.

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Smallcap vs largecap: Which is safer

Large-cap and smallcap are two different categories of stocks based on market capitalisation. While largecap are stocks that have a higher market capitalization of over 20,000 crore, small caps are stocks with a market capitalisation of less than 5,000 crore.

The market capitalisation of a company at any moment is determined by multiplying its total number of shares with its stock price at that moment.

Largecap

Large Cap stocks are basically those stocks that have a market capitalisation of over 20,000 crore or on a rank basis, the top 100 stocks of NSE or BSE are classified as large-cap stocks. These are firms that are already well established and are very popular among investors.

Smallcap

These stocks have a m-cap of less than 5,000 crore and are ranked from the 251st position onwards on the exchanges. These include small companies that are still developing. Such companies mostly go unnoticed by most investors.

Large Cap versus smallcap

Volatility: Large Cap firms are generally less volatile and hence less risky. These are good bets for risk-averse investors. Smallcaps on the other hand, are very risky compared to large caps. They are more volatile to market fluctuations and see a steep rise or fall depending on the market condition. Investors with a high-risk appetite generally prefer smallcap stocks.

Share prices: Large Cap stocks have higher share prices which makes them in large quantities expensive for new investors. Meanwhile, share prices of smallcap stocks are lower making it easier for investors to buy more quantities.

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Growth potential: The growth potential of smallcap stocks is more than large-cap stocks. Since they have lower stock prices, hence the rise in stock price is higher making the return better. Meanwhile, large-cap stocks give stable returns and have limited growth potential. Due to high stock prices, the rise in case of a rally is comparatively lower than small-caps.

Liquidity: Lack of liquidity is a struggle for small-caps since they float lesser shares in the market. Also, only aggressive investors look to buy smallcap stocks, so it might take longer to find a buyer for a smallcaps stock than a large-cap. Large Cap stocks are already popular among investors and there are almost always buyers available for large-cap stocks.

Transparency: It is easier to find more details regarding a large-cap firm, from earnings to management. More brokerages also have more frequent analysis on large-cap firms, however, it is difficult to find a lot of data or analysis in the case of small-cap firms.

One must keep in mind all the factors before investing. Someone with a low-risk appetite should opt for a large-cap stock but must do some research beforehand while only a highly aggressive investor with a high-risk high-reward attitude should invest in a small-cap stock.

First Published: 14 Dec 2021, 03:30 PM IST