30-Day Stock Market Series
Day 3 of 30
Understanding Stock Prices: How Shares Are Valued
Why is Infosys priced at ₹1,600 and Suzlon at ₹40? Does a lower price mean cheaper? Day 3 unpacks stock pricing fundamentals.
What Determines a Stock Price?
In the short term: supply and demand. In the long term: earnings and growth. Prices move because buyers and sellers constantly disagree on what a company is worth.
Core Truth"In the short run, the market is a voting machine. In the long run, it is a weighing machine." — Benjamin Graham
Market Cap: The Right Way to Compare Size
Market Cap = Share Price × Total Shares Outstanding
A ₹40 stock with 10 billion shares is worth ₹40,000 crore. A ₹1,600 stock with 200 million shares is worth ₹32,000 crore. Lower price doesn't mean smaller company — market cap does.
# Calculate market cap
share_price = 1600
shares_outstanding = 200_000_000 # 20 crore shares
market_cap = share_price * shares_outstanding
print(f"Market Cap: ₹{market_cap/1e7:.0f} crore")
# Output: Market Cap: ₹32000 crore
Categories by Market Cap (India)
- Large Cap: Top 100 companies by market cap. Stable, liquid (e.g. Reliance, TCS, HDFC Bank)
- Mid Cap: Rank 101–250. Higher growth potential, moderate risk
- Small Cap: Rank 251+. High risk, high reward, low liquidity
Book Value vs Market Price
Book Value (BV)
Net assets per share = (Total Assets − Total Liabilities) / Shares. What the company is worth on paper.Market Price
What investors are willing to pay today — includes future expectations, brand value, growth potential.P/B Ratio = Market Price / Book Value Per Share
P/B < 1 may indicate undervaluation (or a troubled company). P/B > 5 is common for high-quality franchise businesses like Nestle India or Asian Paints.
Today's Takeaway
Never compare stocks by price alone. Always use market cap, P/E, P/B ratios to measure relative value. A ₹50 stock can be more expensive than a ₹5,000 stock.