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Large Cap Stocks

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Stocks are typically categorized based on their market capitalization. The market capitalization of a company is calculated by multiplying its share price with the total number of shares outstanding. At the current share prices, large-cap stocks generally have a market capitalization of over ₹20,000 crore.

What are Large-cap Stocks?

Securities and Exchange Board of India (SEBI) defines large-cap as "1st-100th company in terms of full market capitalization”, i.e. stocks from those companies that are ranked within the top 100 on the stock exchange in terms of market capitalization.

Large-cap stocks make up most of the equity market and are generally form the core of portfolio investments. Globally, you would find them in the market's leading indexes like SENSEX and NIFTY 50 for large-cap stocks in India.

Large-cap stocks should be part of your investment portfolio as large-cap companies generate stable revenues and earnings. These are blue-chip companies at the peak of their business cycle and are generally market leaders and any news about them typically impacts the broad market as well.

How to buy Large-cap Stocks?

One can invest in large-cap stocks simply by buying the corresponding shares on stock exchange. While large-cap shares are considered considerably less risky than other equity investments, an investor should still analyze the fundamentals and carry out thorough research before buying. An investor could use filters to shortlist good quality large-cap stocks.

One can also invest in multiple large-cap companies through investment in a large-cap mutual fund. Large-cap mutual funds are required to invest at least 80% of their total assets in equity and equity-related instruments of large-cap companies. The diversification provided by mutual funds further reduces the risk associated with such investments. You could also consider exchange traded fund that invest in large-cap index.

As a rule of thumb, about 50% of your equity investments should be in large-cap stocks. If you have low risk profile, you should consider a higher allocation to such stocks.

How to buy Large-cap Stocks?

Stability

Large-cap companies have a proven track record and generate stable earnings. Their stock prices may not move as rapidly as mid-cap stocks or small-cap stocks, but they are unlikely to bust out as well.

Safer in a downturn

As these companies have strong fundamentals, they are more likely to withstand a recession without going out of business.

Pay dividends

Large-cap stocks tend to be dividend-paying stocks, allowing the investors to generate a regular passive income. They do this to compensate the investors for the largely stagnant stock prices as they have the earnings to do so.