Level 3 · Module 2 · Mechanics
Nifty, Sensex & Market Cap
What people mean when they say 'the market went up today'.
In this lesson
What you'll be able to do
- Explain what an index measures
- Compute market capitalisation
- Classify large, mid and small caps
Think about it
The Nifty rose 1% but four out of five stocks you follow fell. How is that possible?
Story
Let's picture it
Because the Nifty is weighted by free-float market cap. A 3% move in a giant like Reliance or HDFC Bank can outweigh small declines in dozens of smaller constituents. The index is a summary, and every summary leaves something out.
Visual
Market cap in one line
Share price
₹500
× Shares outstanding
10 crore
= Market cap
₹5,000 crore
Plain English
The simple explanation
Market capitalisation = share price × number of shares outstanding. It is the market's price tag for the whole company, not the price of one share.
SEBI's classification by market-cap rank: top 100 companies are large cap, 101-250 are mid cap, and 251 onwards are small cap.
The Nifty 50 (NSE) and Sensex 30 (BSE) are free-float market-cap weighted indices. There are also sectoral indices, Bank Nifty, Nifty IT, Nifty FMCG, that summarise one industry.
Real world
Nifty 50
The index's composition changes over time as companies are added and removed. That built-in refresh is why a long-run index chart isn't the story of the same 50 companies.
Watch out
Common mistakes
- Thinking a low share price means a 'cheap' company
- Comparing share prices across companies
- Assuming index movement reflects your portfolio
Did you know?
A ₹50 stock can be far more expensive than a ₹5,000 stock. Only market cap versus fundamentals tells you anything about value.
Your turn
Mini challenge
Pick any two companies. Compute both market caps. Notice how little the share price alone told you.
Quick quiz
1 / 3
Wrap up
Summary
Index = weighted summary of many stocks. Market cap = the market's price tag on the whole business.
- Market cap = price × shares
- Large/mid/small = top 100 / 101-250 / 251+
- Indices are free-float weighted
Revise