Free-Float Methodology Mean?
A method by which the market capitalization of an index’s underlying companies is calculated. Free-float methodology market capitalization is calculated by taking the equity’s price and multiplying it by the number of shares readily available in the market. Instead of using all of the shares outstanding like the full-market capitalization method, the free-float method excludes locked-in shares such as those held by promoters and governments.
Calculated as:
FFM=Share Price x (No. of Shares Outstanding – Locked In Shares)
Free-Float Methodology means:
The free-float method is seen as a better way of calculating market capitalization because it provides a more accurate reflection of market movements. When using a free-float methodology, the resulting market capitalization is smaller than what would result from a full-market capitalization method.
Free-float methodology has been adopted by most of the world’s major indexes, including the Dow Jones Industrial Average and the S&P 500.
Conversely, once the Nifty shifts to free-float methodology, weights of companies like Reliance, ICICI Bank, L&T, HDFC, ITC and HDFC Bank would increase considerably, while weights that of companies with high promoter stake such as Wipro, DLF, ONGC and NTPC would fall drastically.
Showing posts with label NSE Free float. Show all posts
Showing posts with label NSE Free float. Show all posts
Friday, June 26, 2009
Free float on NSE
Mumbai, March 25 The National Stock Exchange will now use the free float market capitalisation methodology to calculate its benchmark indices, it said on Tuesday.
Currently, the Bombay Stock Exchange uses free float market capitalisation for computing the value of its benchmark index, the Sensex.
Methodology
Under the free float method, the index is calculated on the basis of the floating stock or the open market shares of the company as against the method of full float based on the market capitalisation method.
Along with S&P CNX Nifty, Nifty-100 and its dollar index Defty will also be calculated on the basis of free floating market capitalisation, according to the NSE release.
The change in the method of calculation for S&P CNX Nifty and Defty will be effective from June 26, 2009, while for Nifty Junior, this methodology will come into effect from May 4, 2009.
The free float factor (Investible Weight Factor – IWF) for each company in the index will be determined based on the public shareholding of the companies as disclosed in the shareholding pattern submitted to the stock exchanges by these companies, the release mentions.
The Government holding in the capacity of strategic investor, shares held by promoters through ADRs and GDRs, strategic stakes by corporate bodies, investments under FDI category and equity held by associate or group companies would be excluded from the free float factor where identifiable separately, according to the press release.
Free float factor for each company in the index will be updated based on the shareholding pattern submitted on a quarterly basis by companies to the stock exchanges, the release said.
There will be quite a few stocks which will see an increase in their weightage in the index while many would witness a reduction in their weight on the index, said Mr Manish Sonthalia, Vice President -Equity Strategy, Motilal Oswal Financial Services.
Mutual funds and index funds will have to re-align their portfolios according to the change in the weightage of the index stocks, said Mr Sonthalia.
Stocks such as Reliance, Infosys and ICICI would gain under the new free float method, while stocks such as NTPC and ONGC would be among the big losers, said marketmen.
CNX Realty, CNX PSU Bank Index, S&P CNX Nifty Shariah Index and S&P CNX 500 Shariah Index maintained by the NSE’s group company India Index Services and Products Ltd are already being computed using free float market capitalisation methodology, the release added.
source :businessline
Currently, the Bombay Stock Exchange uses free float market capitalisation for computing the value of its benchmark index, the Sensex.
Methodology
Under the free float method, the index is calculated on the basis of the floating stock or the open market shares of the company as against the method of full float based on the market capitalisation method.
Along with S&P CNX Nifty, Nifty-100 and its dollar index Defty will also be calculated on the basis of free floating market capitalisation, according to the NSE release.
The change in the method of calculation for S&P CNX Nifty and Defty will be effective from June 26, 2009, while for Nifty Junior, this methodology will come into effect from May 4, 2009.
The free float factor (Investible Weight Factor – IWF) for each company in the index will be determined based on the public shareholding of the companies as disclosed in the shareholding pattern submitted to the stock exchanges by these companies, the release mentions.
The Government holding in the capacity of strategic investor, shares held by promoters through ADRs and GDRs, strategic stakes by corporate bodies, investments under FDI category and equity held by associate or group companies would be excluded from the free float factor where identifiable separately, according to the press release.
Free float factor for each company in the index will be updated based on the shareholding pattern submitted on a quarterly basis by companies to the stock exchanges, the release said.
There will be quite a few stocks which will see an increase in their weightage in the index while many would witness a reduction in their weight on the index, said Mr Manish Sonthalia, Vice President -Equity Strategy, Motilal Oswal Financial Services.
Mutual funds and index funds will have to re-align their portfolios according to the change in the weightage of the index stocks, said Mr Sonthalia.
Stocks such as Reliance, Infosys and ICICI would gain under the new free float method, while stocks such as NTPC and ONGC would be among the big losers, said marketmen.
CNX Realty, CNX PSU Bank Index, S&P CNX Nifty Shariah Index and S&P CNX 500 Shariah Index maintained by the NSE’s group company India Index Services and Products Ltd are already being computed using free float market capitalisation methodology, the release added.
source :businessline
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