Know the Free Float Market Capitalization:
There are top 30 companies in the SENSEX, and in the NIFTY50, there are the top 50 companies. How do these companies decide? So that is according to free float capitalization.
There are different indices of BSE and NSE, which are autonifty, bank nifty, and many more. The companies that are selected in all these indices are according to the free-float market capitalization.
When you see the rise and fall in the Sensex and Nifty, it is not according to the companies’ market capitalization; it is due to the free-float market capitalization of the company.
Earlier, this was done according to full market capitalization, but now it is processing by according to free-float market capitalization. So what is the concept of free-float market capitalization? what is its concept, and also from examples, calculations we will all know in this blog.
MARKET CAPITALIZATION = SHARE PRICE * NO. OF SHARES ISSUED
If we use this formula then we get full market capitalization. also we say market value of a company. If you want to know a company’s market capitalization, you will have to multiply the share price by the total number of shares.
What is free float Market Capitalization?
The market value of shares of a company that are available for trading is called free-float market capitalization.
See whenever a company wants to be listed in the stock market, that company does not list all its shares, that is, it does not list 100% shares, it can list all the shares, but it depends on the company, how much of the percentage shares that company want to list. If a company lists only 20% of its shares, then only 20% of its shares are tradable. Like retail investors, FII’s, DII’s can only trade of 20% shares of that company.
The 80% shares are the promotor holding, and remain 20% of shares listed in the market that value are called the company’s free-float market Capitalization.
Free float Market Capitalization Formula:
Free float Market Capitalization= Share Price*(Shares Issued-Locked In shares Capitalization)
What is locked In shares?
Locked share is which held by promotors, Employee Welfare Trusts, Governments, Strategic Holdings by private Companies or individuals etc.
Benefits of Free float Market Capitalization:
Shows the Market trend more rationally. Because how many stocks are trading in the market or index only this much of shares are calculates by free float. Therefore you can know the market trend very well.
Full market capitalization: If the market capitalization of a company is very high and if the stock of that company goes upside few percentages, then the movement of the entire index will be upside if the calculation done according to full market capitalization. And likewise, if few 4-5 more high capital companies are in the index then the index will mostly depends on these 4-5 companies only.
Therefore the free float market capitalization are used to index not depend on high capitalized companies.Many indexes are using the free-float methodology. Like FTSE, S&P and MSCI).