Large-cap stocks are important as investment instruments because they are important for their transparency, stability, and clean financial legends. The market seems to offer a safety net when the market is going through a downtrend, even if they are corrected because of the overall market condition. Large-cap stocks are high-value stocks. They are well-established companies that have been around for a long time. A large-cap company in India is usually worth around 20,000 crore. Many large-cap stocks also fall in the blue-chip category.
To calculate the market capitalisation of a company, one has to multiply the outstanding shares of a company by the price of a stock unit. A company can be labeled as large-cap, mid-cap, and small-cap, given the value arrived at. Stocks of companies like Infosys, TCS, HDFC and Reliance are categorised as large-cap.
As large-cap companies usually have a strong market presence, investing in these companies is considered safe. Large-cap companies are used for long-term investments because of their stability and potential to earn dividends.
Manoj Dalmia, Founder and Director, Proficient equities Private limited explains: Large-cap stocks can be bought by those who consider taking a less risk when compared to mid-cap or small-cap companies. Many of the large-caps have corrected in the recent selling spree and many are below their 200 D EMA indicating a downward trend. Investors can accumulate known brands in their portfolio by buying at dips. There are a number of reasons for picking large-cap companies. These companies are transparent. Investors can easily access the financial legends of these companies because of their corporate stock record. They are stable and make for long-term investment horizons. Large-cap companies are well managed by experienced industry veterans. Usually, large-cap companies pay dividends over a long period.
Why do investors invest in large-cap stocks during a bear market?
Large-cap stocks may not give high returns because of their financial maturity, but they are stable and considered low-risk when market conditions are choppy. They offer high liquidity because of their popularity. In an unpredictable market situation with a bearish trend, investors prefer to invest in large-cap stocks which may be expensive but have less chance of a wipeout.
Mid-cap stocks are the closest to large-caps followed by Exchange Traded Funds ETFs and equity funds. ETFs and equity funds are instruments that aim to minimize risks.
How much of your portfolio should be dedicated to large-caps?
Ravi Singh, Vice President and head of research at Share India said: Large-caps are generally expensive to invest and mid-caps and small caps are preferred among investors. Large caps have corrected around 30 per cent after the massive correction in the index, which is an attractive level for value buying and can deliver substantial returns on market recovery. Investors must invest 60 per cent of their investment in large caps at current levels.