In this article:
- Decoding market capitalisation
- Top 10 companies by market capitalisation
- Why are these companies valued at highest market capitalisation? – Detailed company analysis
What is Market Capitalisation? – Decoding Market CapitalisationMarket capitalisation is simply the total value of issued share of a particular company. These shares are issued by the company and currently held by retail investors, institutional investors and promoters.Market capitalisation is also known as market cap. It essentially helps us understand the size of a company and assess its true value.
Market Capitalisation FormulaMarket Capitalisation = Current market price (CMP) of a stock X Total number of issued share To calculate market capitalisation, you simply have to multiply a company’s current market price with total number of issued shares.Let us take a simple example and calculate market capitalisation.Suppose the current market price of a company is Rs 500. The total number of shares issued by the company are 10 crores. So, the market capitalisation of the company will be Rs 5,000 crores (Rs 500*10 crores).
Let us now learn how market capitalisation helps in assessing the value of a company.
1. Market capitalisation negates the noise:Which company is bigger? – A company with 1 crore issued shares and a market price of Rs 10,000? Or a company with 100 crore issued shares but a market price of Rs 100? It may seem that the first company is the bigger one. But after calculating the market capitalisation, you will realise that both the companies are same in stature. This is why, it is important to factor in market capitalisation while analysing stocks.
2. Market Capitalisation aids DiversificationMarket capitalisation helps you bifurcate between large, mid and small cap companies. This is the first step in diversifying your investment portfolio. Similarly, market capitalisation also helps you invest according to your risk appetite. Companies are typically divided on the basis on market capitalization as:
- Large-cap companies
- Mid-cap companies
- Small-cap companies
3. Market Cap to Gross Domestic Product (GDP) ratioGDP ratio determines whether the market is overvalued or undervalued as compared to historical averages.Market Cap to GDP ratio Formula = [Market Cap / Gross domestic product (GDP) ratio] * 100Practical exampleThe current Indian market cap is close to Rs. 257.67 lakh crores, the country’s GDP is Rs. 135.13 lakh crores.Therefore, the market cap to GDP ratio =[257.67 lakh crores/ 135.13 lakh crores] *100The market cap to GDP ratio would be approximately 191.42%This would mean that the stock market are currently overvalued. Given that 191% of GDP represents the stock market value. With this market cap to GDP ratio, investor can create an investment strategy and try to time the markets. Smart SIP by RankMF is one of the best tools to invest as per market valuations. In SmartSIP, experts assess the current market conditions and invest larger chunks whenever markets fall.Here’s the list of top 10 companies in India with highest market capitalisation in 2021 Top 10 companies by market capitalisation
|No.||Name||CMP Rs.||P/E||Market Cap (Rs. In Crore)||EPS||ROE%|
|2||Tata Consultancy Services Ltd||3502.75||35.42||12,95,685||99||39.06|
|5||Hindustan Unilever Ltd||2431.9||67.6||5,71,397||35||29.33|
|8||State Bank of India||523.25||13.8||4,66,980||32||8.21|
|9||Bajaj Finance Ltd||7673.65||93.08||4,63,177||82||12.78|
|10||Kotak Mahindra Bank Ltd||2118.85||42.08||4,20,186||50||13.11|
Why are these companies valued highest market capitalisation?
- Reliance industries makes it to the top in the list of companies with highest market capitalisation. It has evolved from being a textile company to an integrated player with businesses in energy, retail, entertainment, material and digital services.
- Next in the line is Tata Consultancy Services (TCS) from IT sector. It is highly reputed for its execution excellence and customer centricity. Its journey has been transformational and it has a strong presence across the globe. TCS generates 52% of its revenue from America’s client base and 31% from Europe.
- HDFC Bank continues to be a golden boy of Indian financial markets. Its innovative ways to deal with crisis are inspiring for commoners. With gross non-performing assets (NPAs) of just 1.32%, HDFC banks on-going growth story is the one everyone wants to be a part of.
- Infosys Ltd. is another IT giant in the list. It provides consulting and next generation digital services allowing its clients to execute strategies digitally. Infosys aims to be a navigator for their clients as they ideate, plan and execute their digital journey better.
- Hindustan Unilever Ltd. is ranking fifth on the market capitalisation list. Around 90% households of India use one or more products of its brands. It is a market leader in many segments like skin care, household care, fabric cleaning, tea, health drinks, ketchup, etc.
- ICICI Bank is another large private sector bank making it to the list of companies with highest market capitalisation. ICICI Bank caters to retail, small medium enterprise (SME) and corporate customers with diversified financial services.
- Housing Development and Finance Corporation (HDFC) pioneered housing finance is India and ranks seventh in the list of top companies with highest market capitalisation. It holds stake in array of HDFC businesses and has a venture capital investment firm as well as a private equity firm focusing on real estate. The company pays out healthy dividends of 20.43%.
- State Bank of India (SBI), is the biggest public sector bank in India. It enjoys eighth rank in the list of companies with highest market capitalisation. Additionally, it is fourth largest Indian fortune 500 company. With a strong customer base of over 45 crore customers, SBI enjoys over 22% of market share in deposits. SBI is government’s banker of choice in FY20 it received commissions of 3,700 crores from government businesses.
- Bajaj finance Ltd is the largest non-banking financial institution (NBFC) of India. It has a diversified lending portfolio and significant presence in urban and rural India. Bajaj finance has one of the lowest NPAs across the entire NBFC industry.
- Kotak Mahindra Bank provides wide range of banking services. Its client base of 2.3 crore users is widening as the bank focuses on digitalizing banking. In FY20 around 70% of clients were added through digital means.