What is market capitalization, and why is it important?

Market capitalization (also known as "market cap") is the total value of a company's outstanding shares in the stock market. 

It's calculated as:

Why is Market Cap Important?

1. Classifies Companies: Companies are categorized as large-cap, mid-cap, or small-cap based on market cap, helping investors assess risk and return potential.

2. Indicates Size & Stability: Larger market cap usually means a more established and stable company, while smaller caps have higher growth potential but more volatility.

3. Guides Investment Strategies: Mutual funds and investors often choose stocks based on market cap to align with their risk appetite and financial goals.

4. Impacts Index Inclusion: Major indices like NIFTY 50 and SENSEX include companies with higher market caps, influencing overall market trends.

5. Affects Liquidity & Valuation: Higher market cap stocks tend to have better liquidity and lower price volatility, making them more attractive for institutional investors.

In short, market cap helps investors gauge a company’s size, risk, and investment potential, making it a key factor in stock market decisions.

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