Your Definition of Large Cap Might Be Outdated

Today’s Daily Byte

The markets looked much better today, supported by encouraging cues from the US. On Friday, the US jobs data triggered a significant shift in expectations for interest rate cuts.

• Nifty closed at 24,722, up 0.64%, holding within the recent five-day range.

• Nifty Jr rose 1.09%, Midcaps gained 1.14%, and Small caps climbed 0.98%.

The only laggard was Bank Nifty, which ended flat, possibly due to underwhelming recent bank results. Gold also moved higher, crossing ₹10,000 per gram in rupee terms, as investors sought precious metals alongside emerging markets.

Other Market Triggers

• JSW Energy jumped 5% as it targets 30 GW capacity by 2030, boasting 70% year-on-year growth.

• ABB India slipped 5.4%, returning to March levels after a weak Q1 results.

What to watch next ?

• With US interest rates likely to fall, funds may be less inclined to move into the US dollar.

• As a result, we might see more flows into emerging markets and risk assets.

• There is talk of SEBI tightening rules on options trading, which could hurt brokers and exchanges in the coming day.

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The Shifting Sands of Market Caps: A 20-Year Evolution

The Incredible Growth of Indian Equities
Just 20 years ago, around 2005, a "large-cap" stock was typically defined as having a market capitalization above ₹5,000-6,000 crores. Fast forward to today, 2025, and the definition of a small-cap stock starts at a minimum of ₹11,000 crores! The 250th to 500th largest stocks in the market now boast market caps exceeding this figure.

This isn't just a slight bump; it's explosive growth across the board (see the image below).

This data vividly illustrates the rapid expansion of the entire Indian market cap universe over the past two decades.

Does Fixed Categorization Create Market Buckets?

The regulator's fixed categorization – top 100 stocks as large-cap, 101-250 as mid-cap, 251-500 as small-cap, and so on – while providing structure, might also inadvertently influence investor behavior.

If a narrative like "large caps are safe" takes hold, it can lead to concentrated flows into these top 100 stocks. It's worth remembering that many of today's large-cap giants were once yesterday's mid-caps, performing exceptionally well.

This fixed classification might create "inflexible buckets" for funds (mutual funds, AIFs, smallcases, etc.) committed to specific categories. While most stocks above ₹10,000 crores are generally liquid, well-researched, and sought after, the rigid definition limits the universe of investment for category-specific funds.

This snapshot offers valuable perspective on how the investment landscape has matured and continues to transform.