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What are Large Cap Stocks?
Large cap stocks are shares of companies whose market capitalisation is more than INR 20,000 crore. These companies are known to be more stable than mid-cap companies or small-cap companies. Furthermore, their track record and consistent returns make them stable investment options. Large cap stocks are market leaders and quite resilient during market adversities such as recession or any other negative news. These companies have been in business for many decades and have a good reputation. Thus, large cap stocks can be good long term investments with less volatility.
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TCS, Infosys, Reliance, HUL, etc., are some of the popular large-cap companies. These companies have a strong foothold and are less volatile to market movements. Hence are a good option for long term investing.
Due to their strong market presence, large-cap stocks are part of broad market indices such as SENSEX and NIFTY.
Features of a Large Cap Stocks
Following are the features of large cap stocks:
Returns
Large cap companies are well-established and mature companies. Thus, large-cap stocks offer moderate and stable returns. The stock prices are not as volatile as mid and small-cap stocks. Since they are large corporations with financial maturity, they give dividends to investors. Dividends contribute largely to the returns these stocks have to offer.
Risk
Large cap corporations have a strong financial infrastructure and are more resilient to withstand market fluctuations. As a result, large-cap stocks have a moderate reaction to market volatility. Thus, these stocks are not as risky as mid-cap or small-cap companies. Large cap stocks do not face the risk of going bankrupt during a market downturn and can continue to operate.
History
Large cap stocks have been in business for decades. Their long track record and established operations instil trust among the investors. Investors can analyse the company’s performance over time and understand for themselves how the stock has fared across different market scenarios.
Liquidity
Large cap stocks are the most popular stocks in the market. Due to their popularity, the trade volumes are high. More buyers and more sellers offer high liquidity.
Price
Large cap stocks are slightly expensive when compared to other stocks. Since large cap stocks have proven track records, strong financials, and are stable investment options, their stock prices are high.
Advantages and Limitations of Investing in Large-Cap Stocks
Advantages
Following are the advantages of investing in large-cap stocks:
Stability
Large cap stocks are relatively stable investment options within equity as an asset class. Thus, they offer stability to your investment portfolio. Market turmoil or downward trend generally has a lesser impact on prices of these stocks. The chances of a large-cap company going insolvent or bankrupt are quite low. As a result, these stocks somewhat offset any losses you may experience from other securities in your portfolio during a market downturn.
Income
Large-cap companies pay dividends to their investors. Thus, dividends are a source of regular income for equity investors. As a result, even if the capital gains upon sale are not significant, you may enjoy the regular dividends. Regular dividends make up for the absence of consistent returns from other types of investments.
Information
Information about large-cap is easily available to the public. It is necessary for all large-cap companies to disclose/ publish their financial statements and other details. Thus, investors can analyze the company’s business, trends, and future prospects easily. Availability and access to such information will help you make smart investment decisions. Furthermore, you can use financial data to compare different companies and choose the right stock for your investment portfolio.
Limitations
Expensive
Largecap stocks have a high demand in India. Since these companies have been in business for many decades, their proven track record and performance attract investor confidence. Thus, they are a preferred choice of investment. As a result, the stock prices are often high and are not in reach for investors with less disposable income.
Capital Appreciation
Largecap stocks are stable investment options. Their response to a market downtrend or uptrend will not be very drastic. Thus, the capital appreciation may not be as high as a mid-cap or small-cap stock investment. Largecap stock investments offer moderate returns and pay regular dividends to investors.
Who Should Invest in Large Cap Stocks?
Largecap stocks are suitable for investors with a long-term investment horizon who seek stable growth within their equity portfolio. These stocks offer regular dividends and are not very volatile compared to mid-cap or small-cap stocks. Since information regarding largecap stocks is easily available, you can analyze the stock thoroughly before investing.
Including largecap stocks in your investment portfolio will help you achieve much-needed stability. Having largecap stocks as a focal point of your investment portfolio will help you generate significant returns in the long term.
Therefore, you can consider investing in stocks to achieve your long-term goals and objectives. Their proven track record and sound financial position will protect your investment portfolio from fluctuations. Furthermore, you do not have to worry about stock movements during market turmoil. These stocks will help you generate significant returns in the long term. However, it is advisable to thoroughly analyse the stocks before investing.
Also, if you do not have the expertise to identify and analyze a stock, you can always take the help of an advisor to build your investment portfolio.
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