Free Float Methodology

Bombay Stock Exchange

• BSE is the oldest stock exchange.
• Established in 1875. obtain permanent recognition in 1956 from the
Government of India under the Securities Contracts (Regulation) Act,
1956.
• Its index, SENSEX.
• It consists of the 30 largest and most actively traded stocks,
representative of 11 sectors.
• These companies account for majority of the market capitalization of
the BSE.
• At irregular intervals, it’s authorities review and modify its
composition to make sure it reflects current market conditions.
National Stock Exchange
• Nifty is an index or an indicator of the performance of the companies
listed in national stock exchange.
• Nifty constitutes of 50 companies and the change in the Nifty index
( Up or down) indicate the trend in the majority of the stocks.
• NIFTY consists of 50 companies from 13 different sectors.
Market capitalization
• Market capitalization refers to the value of a company's outstanding
shares
• outstanding shares: number of shares issued by the company &
subscribed by the public
•  Market Capitalization = Current market price of Stock X
SharesOutstanding
• Company XYZ has 10,000 outanding and the current share price is
Rs90.
• Company XYZ's market capitalization is 10,000 x Rs90 = RS 9,00,000/-
Free float market capitalization
• It is defined as the value of the shares readily available in the market for
public trading excluding:
• promoters equity holding through FDI route
• holding by private corporate and holding by employees welfare funds.
• Why free float market capitalization?
• 1. It depicts the market more rationally.
• 2. It removes undue influence of government or promoters share holding,
there by giving them equal opportunity for companies to be in the
SENSEX. 3. Almost all the indices over the world are calculated by this
methodology. 4. It gives fund managers more authentic information.
• The formula for calculating SENSEX = (sum of free flow market capital
of 30 blue chip companies) X index factor
• Where in: Index factor= 100/ market capital in 1978-1979
• Where 100 is the index value in 1978-1979
• Example: Assume the sensex has only two stocks namely SBI and
Reliance. total shares in SBI are 500 out of which 200 are held by govt.
and only 300 are available for public trading. reliance has 1000 shares
out of which 500 are held by promoters and 500 are available for
trading. assume price of SBI stock is rs.100 and reliance is rs.200. then
free floating market capital of these two companies,
(300*100+500*200)=30000+100000=130000
• Assume the market capital during the year 1978-79 was Rs.25000
Then Sensex =130000*100/25000=520.