What are Large Cap Stocks?
SEBI defines large cap stocks as those listed companies which are ranked from 1 to 100 in the Indian stock exchanges based on market capitalisation.
Large cap stocks generate stable revenues and earnings in the long term and hence they should be part of one’s investment portfolio.
Some stocks from large cap universe are also known as Blue chip stocks. The term blue chip was derived by the poker game where the blue coloured chips holds the highest value on the table. Similarly, Blue Chip companies are those well-established companies from a particular sector that have stable earnings and have the highest market valuation. Blue chip stocks are the leader of their particular industry.
Here is a list of Top 10 Large Cap Stocks
|Company||Script Code||Market Cap (in Cr.)||Symbol||Rating||Sector|
|1||Reliance Industries Ltd.||500325||1286019.19||RELIANCE||1.0||Integrated Oil & Gas|
|2||Tata Consultancy Services Ltd.||532540||1168881.74||TCS||5.0||Information Technology|
|3||Hindustan Unilever Ltd.||500696||563449.86||HINDUNILVR||5.0||FMCG|
|4||Infosys Ltd.||500209||590335.86||INFY||4.0||Information Technology|
|5||Housing Development Finance Corporation Ltd.||500010||469855.89||HDFC||5.0||Finance – Housing|
|6||Bharti Airtel Ltd.||532454||286354.30||BHARTIARTL||0.5||Telecom|
|8||Asian Paints Ltd.||500820||247247.62||ASIANPAINT||4.0||Chemical – Paints|
|9||Nestle India Ltd.||500790||165006.34||NESTLEIND||5.0||FMCG|
|10||HCL Technologies Ltd.||532281||270376.02||HCLTECH||4.0||Information Technology|
*Market Capital as on 30th March 2021
What is full market capitalisation and free float market capitalisation?
Full market capitalisation is the valuation of the company. It is calculated by multiplying total outstanding shares and the current price of share.
What are outstanding shares?
Outstanding shares represent total number of shares of a company.
Let us understand market capitalisation with an example of Grapes Ltd.
Suppose Grapes Ltd. has 20,000 outstanding shares in the market.
Each share is priced at Rs 20. Then the market capitalisation of Grapes Ltd. will be calculated as:
Market capitalisation = Outstanding shares x price per share
20,000 x Rs 20 = Rs 4,00,000
The market capitalisation of Grapes Ltd is Rs 4,00,000.
What is free float market capitalisation?
Free float market capitalization is different from full market capitalization.
A free float capitalisation refers to the share that are freely available in the market. It is calculated by multiplying the number of shares freely available and the current price of share.
While calculating free float market capitalisation these things are excluded:
- Promoter holdings.
- The shares held by company’s managers and other officials.
- Shares that are held by the government and other private parties.
Now, let us understand the difference between full market capitalization and free float capitalization of with a realistic example of ICICI Bank.
ICICI Bank has a free float market cap of Rs 3,49,648 crores while the full market cap is around Rs 4,01,771 crores.
So, a free float market capitalisation is always less than the total market capitalisation as it excludes many factors.
Stock exchanges NSE and BSE use the free-float market capitalisation method to know the market cap of stocks.
Classification of Large cap stocks
Large cap stocks are classified into two:
- Large cap value stock
- Large cap growth stocks
What are large cap value stocks?
Large cap value stocks are classified as companies that are currently undervalued and have the potential to provide a superior return in the long run. You can compare the price to earnings ratio (PE) of stocks in the same industry to know which stocks are undervalued. The lower the PE ratio, the more undervalued is the stock.
For Example: ITC is considered as a large cap value stock since it’s PE ratio is placed in the range of 15 to 20.
What are large cap growth stocks?
Growth stocks are those large cap companies that have the potential to outperform the market over time. These stocks have the potential to increase their revenue and earnings at a faster rate than the average businesses in the same industry.
For Example: TCS is considered as a large cap growth stock. Its sales have compounded by 18% over last 10 years. Its PE ratio is placed at highest level since listing at 35.
Characteristics of Large Cap Stocks
1. Large cap stocks are easily recognisable
These stocks are easily recognisable as we use most of their products in our day to day lives. They have a track record of producing high quality goods and has a vast distribution channel.
2. Resilient to economic downturns
Large cap stocks have a steady growth and are often less volatile. These are the companies that are profitable even when the markets are down. Hence they are less sensitive to the market sentiments as compared to mid cap or small cap stocks.
3. A source for passive income
Large cap stocks provide dividends to its shareholders. So even if the prices of stocks do not rise substantially, they do provide you with passive income through dividends.
4. Availability of information
All listed companies have to strictly follow the SEBI guidelines. They have to timely disclose information about their financial statements and other developments in company.
Large cap stocks are well-researched by broking houses and funds. All this helps you in making a well-informed decision. Such information may not be available in smaller companies.
5. Best for conservative investors
For risk averse investors large cap stocks are the ideal pick. They can balance your portfolio by reducing risk and provide stable returns.
What should you look before investing in Large Cap Stocks?
1. Companies with consistently rising Sales and Profits
Sales and profits are critical metrics to evaluate the performance of a company.
Maximising sales of a company helps a company earn a higher market share which eventually increases the customer base of the company. On the other hand, increasing profits help the company to improve income and margins through cost optimisation.
Hence a company with a consistently rising sales and profit ratio is considered to be an appropriate one to invest.
2. High Operating Profit Margin
Operating Profit Margin measures the profitability of a company. This ratio helps to determine the percentage of profit which the company generates from its operations before deducting taxes and interest.
A good operating margin is the one which is positive and increasing over time.
3. High ROE and ROCE
ROE (Return on equity) refers to the profits generated on shareholders’ equity. ROCE (Return on capital employed) refers to the primary measure of how efficiently a company utilizes all available capital to generate additional profits.
A company with high ROE and ROCE with stable growth is considered as a good company. It shows that a firm is making consistently good use of its resources. You can check the ROE and ROCE of a company with its competitors and invest accordingly.
4. Debt to Equity ratio
A debt to equity ratio helps you analyse how much a company is in debt.
A high debt to equity ratio is a sign of debt on the business. It means that the company is spending a part of its revenue on repaying debt. Hence, a low debt-equity ratio is favourable from investment point of view.
EV (enterprise value) is the firms economic value. EBITDA is the Earnings Before Interest Taxes Depreciation and Amortization.
When you compare the EV/EBITDA ratio among the companies in the same industry it helps you analyse if a stock is priced too high or too low.
6. High Dividend yields
Dividend yield is the financial ratio that measures the significant amount of cash dividends paid out to shareholders relative to the market value of the share.
Check out our video on how you identify the best large cap stocks to buy in India.
Alternatives to investing in Large Cap Stocks
Mutual Funds are a great alternative to indirectly investing in the stock markets.
Perks of investing in mutual funds:
- They are professionally managed.
- Mutual funds are well diversified.
- You can start with as low as Rs 500.
- You can avail tax benefits.
Large Cap mutual funds
You can invest in a large cap mutual fund where your funds are primarily invested in the top 100 large cap companies. These companies generally have a market capitalisation of more than 20,000 Crores. These mutual funds invest 80% of the capital in large cap funds and the rest 20% is invested in mid cap and small caps.
List of Top 10 Large Cap Mutual Funds
|Large Cap Fund||Rating||6 months||1 Year||3 Years||5 Years||AUM (in Rs cr)||Expense Ratio|
|Axis Bluechip Fund||5 Stars||30.87%||21.04%||16.47%||17.52%||22,518||1.78%|
|UTI Mastershare||4 Stars||35.13%||25.33%||11.72%||15.02%||7,430||1.97%|
|Canara Robeco Bluechip Equity||4 Stars||32.95%||28.08%||15.85%||17.89%||1,364||2.23%|
|Mirae Asset Largecap Fund||4 Stars||31.90%||24.18%||11.25%||17.54%||22,093||1.63%|
|Aditya Birla SL Frontline Equity Fund||4 Stars||35.08%||23.84%||8.91%||13.98%||19,575||1.77%|
|SBI Bluechip Fund||4 Stars||38.04%||26.41%||10.95%||14.22%||25,925||1.95%|
|Kotak Bluechip Fund||4 Stars||31.94%||23.60%||11.30%||14.64%||2,067||2.14%|
|BNP Paribas Large Cap Fund||4 Stars||30.23%||23.04%||12.21%||14.68%||1,051||2.26%|
|HSBC Large Cap Equity Fund||4 Stars||34.52%||24.92%||10.82%||15.81%||698||2.45%|
|LIC MF Large cap Fund||4 Stars||30.84%||16.43%||11.70%||13.95%||459||2.61%|
*This is simply the list of best large-cap funds. This is not investment advice.
Are large cap stocks right for you?
If you wish to invest for the long term with relatively low volatility, then large cap stocks are ideal for you.
You can also invest in StockBasket’s 5 Year beginner basket which is expertly curated for long term wealth creation which has outperformed the Nifty 50 index by whopping 57%. You can start investing in these baskets with as low as Rs 3,500.
If you already have a portfolio of volatile stocks, then adding a few large cap stocks can be a smart move.
To explore the live prices of the best large cap stocks in India, refer to Samco’s robust trading platform StockNote.