What is Market Capitalization?

Using Market capitalization to show the size of a company is important because company size is a basic determinant of various characteristics in which investors are interested, including risk. It is also easy to calculate. A company with 10 million shares(1Crore) selling at 100rs a share would have a market cap of 1 billion (100 crores).

Free-float market capitalization:

Suppose company A has 1,000 shares in total, of which 200 are held by the promoters, so that only 800 shares are available for trading to the general public. These 800 shares are called ‘free-floating’ shares. If the price of each share is 120 rupees, then the ‘total’ market capitalization of the company is 120,000 rupees (1,000 x 120), but its free-float market capitalization is 96,000 rupees (800 x 120).

In stockmarket companies will be divided into different groups by its capitalization.

Those are Large Cap, Medium Cap, Small Cap & Micro Cap.

A company which market capitalization is more than 20,000 cr its is in Large Cap .

A company which market capitalization is more than 5000 cr but not greater than 20,000 cr it is in Mid Cap

A company which market capitalization is less than 5000 cr it is in Small Cap.

A company which market capitalization is 500cr to 1000 cr then it is in Micro.

Who Invested in Stock Market?

There are different types of investors in the stock market.

  1. FII stands for Foreign Institutional Investor

(Foreigners who are invested in 1000’s of crores in Indian markets)

  1. FPI stands for Foreign Portfolio Investor

(Foreigners who are invested in 1000’s of crores in Indian markets like FII.)

  1. DII stands for Domestic Institutional Investor

(Mutual fund investors & Banks, invest in 100 to 500 crores)

  1. Bulk traders or Block deal Traders (Who are invest in 2 crore to 25 crores)
  1. Retail Investors.(Below 1 crore Investors are all retailers)

FII/FPI & DII activities play a big role in the stock market. It is important to Analysis of FII/FPI and DII relative to NIFTY price movement. Let us discuss clearly about FII and DII.

What is a ‘Foreign Institutional Investor – FII’?

A Foreign Institutional Investor is an investor or investment fund which is registered in the country outside the one in which it is investing. They can be insurance companies, hedge funds, mutual funds. This term is generally used in India and it refers to outside companies investing in India.

Usually FII invests in those countries which are developing economies like India. These types of economies provide high potential growth. All of the FII’s must be registered with SEBI (Securities and Exchange Board of India is the regulator for the securities market in India.) to invest in India.

For example:

 A mutual fund in the United States sees an investment opportunity in a company of India, it can purchase the equity of that company and can take a long position.

What is a Domestic Institutional Investor – DII ?

Domestic Institutional Investors or DII are the Indian Institutional Investors who directly invest in the Indian financial markets. Domestic Institutional Investor can be hedge funds, mutual funds, banks, insurance companies, pensions companies.

*Note: Both FII’s & FPI’s activity almost same in Indian market. So we don’t need to discuss about FPI’s particularly.

What is Stock Exchange in India?

A place where Companies list shares of their stock on an exchange — often to raise money to grow their business — and investors purchase those shares.

In simple words Stock Exchange means, Where Buyers & Sellers meet place for buying & purchasing a stock.

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

BSE:

  • BSE is the first stock exchange of Asia. Established in 1875.
  • Approx 5000 companies are listed in BSE.
  • In BSE, The 30 component companies which are some of the largest and most actively traded stocks, are representative of various industrial sectors of the Indian economy.
  • A figure indicating the relative prices of 30 companies shares on the BSE is called SENSEX (Sensitive & Index).
  • If the Sensex goes up, there is a high probability, stock prices of companies listed on BSE will largely go up.

NSE:

  • The National Stock Exchange of India Limited (NSE) is the leading stock exchange of India, located in Mumbai.
  • The NSE was established in 1992 as the first demutualized electronic exchange in the country.
  • Approx 1600 companies are listed in NSE.
  • Simillarly like BSE, A figure indicating the relative prices of 50 companies shares on the NSE is called NIFTY 50  (National Stock Exchange Fifty).
  • If Nifty goes up, there is a high probability, stock prices of companies listed on NSE will largely go up.

*Note: You can trade in both Sensex & Nifty

To open an account go through link https://zerodha.com/?c=ZE4618

What is Stock Market?

The Stock market refers to the collection of markets and exchanges where regular activities of buying & selling of shares of publicly-held companies take place. 

Example:

While today it is possible to purchase almost everything online, there is usually a designated market for every commodity. Take an general example, People went to forests and farmlands to purchase trees or visit the local timber market to buy wood and other necessary material for making home furniture and renovations, after that they sell those products into online stores like Amazon, Flipkart etc.

Such dedicated markets serve as a platform where numerous buyers and sellers meet, interact and transact. Since the number of market participants is huge, one is assured of a fair price. For example, if there is only one seller of trees in the entire city, he will charge at any price he wants as the buyers won’t have anywhere else to go. If the number of tree sellers is large in a common marketplace, they will have a competition against each other to attract their buyers. But buyers bargain with low- or optimum-pricing making it a fair market with price transparency. Even while shopping online, buyers compare prices offered by different sellers on the same shopping portal or across different portals to get the best deals, forcing the various online sellers to offer the best price.

A stock market is also exactly similar designated market for trading various kinds of securities in a controlled, secure and managed the environment. Since the stock market brings together hundreds of thousands of market participants who wish to buy and sell shares, it ensures fair pricing practices and transparency in transactions. While earlier stock markets used to issue and deal in paper-based physical share certificates, the modern day computer-aided stock markets operate electronically.