What Is Free Float Market Capitalisation - The Economic Times

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Read Today's Paper What is free float market capitalisationSECTIONSWhat is free float market capitalisationBy Sanam Mirchandani, ET BureauLast Updated: Jul 31, 2017, 01:32:00 PM ISTRate Story

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Market capitalisation is the outstanding number of shares of a company multiplied by its current market price.

Market capitalisation is an important parameter which many investors consider while putting money in a company. Some investors watch free float market capitalisation as it gives better insight into the quality of the holding. ET tells you what it means and why it is important: 1. What is market capitalisation of a company? Market capitalisation is the outstanding number of shares of a company multiplied by its current market price. For example, if a company has 1 lakh outstanding shares and the stock price is Rs 20, then the market capitalization of the company is Rs 20 lakh. 2. What is free float market capitalisation? In free float market capitalisation, the value of the company is calculated by excluding shares held by the promoters. These excluded shares are the free float shares.For example if a company has issued 10 lakh shares of face value Rs 10, but of these, four lakh shares is owned by the promoter, then the free float market capitalisation is Rs 60 lakh. 3. How does free float market capitalisation differ from total market capitalisation? ET logo

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Free float market capitalisation is lower than total market capitalisation as shares held by promoters or those that are locked in are excluded. For instance, Coal India has total market capitalisation of Rs 1.8 lakh crore but the free float market capitalisation is about Rs 35,600 crore because of the government’s high holding. 4. How does it affect trading of shares? Stocks that have small free float are likely to see higher price volatility as it takes fewer trades to move the share price. On the other hand, in the case of a larger free float, volatility is lower. In stocks with a large free float, the number of people buying and selling the shares is higher and so, a small amount of trading does not affect the price significantly. 5. How does free float methodology help in index calculation? Both NSE and the BSE use the free float market capitalisation method to calculate their benchmark indices Nifty and Sensex respectively and assigning weight to stocks in the index. So a company with a higher free float has a higher weightage on the indices. A free float index reflects market trends better as it takes into consideration only those shares which are available for trading. It also makes the index more broad-based as it helps to reduce the concentration of top few companies. Add ET Logo

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