Market Capitalization, Free Float Market Capitalization and SENSEX calculation

RIL gained 1.2% to Rs 765.6 on the BSE, which pushed up its valuation to Rs 2,50,650 crore on Tuesday. CIL, however, lost nearly 1% to end at Rs 391.9 after which its Market Capitalization declined to Rs 2,47,538 crore. With Tuesday's gain, RIL has recovered 4.7% in the past two trading sessions

What is all about Market Capitalization??
Market cap or market capitalization is simply the worth of a company in terms of it’s shares! To put it in a simple way, if you were to buy all the shares of a particular company, what is the amount you would have to pay? That amount is called the "market capitalization"!

Market Capitalization = Current share price X No. of equity shares issued

What is "free-float market capitalization"?
Shares which are not privately held i.e. shares not held by directors of the company, FDI, PE Investors, Government etc. are called as free float shares.

According the BSE, any shares that DO NOT fall under the following criteria, can be considered to be open market shares:

1. Holdings by founders/directors/ acquirers which has control element
2. Holdings by persons/ bodies with "controlling interest"
3. Government holding as promoter/acquirer
4. Holdings through the FDI Route
5. Strategic stakes by private corporate bodies/ individuals
6. Equity held by associate/group companies (cross-holdings)
7. Equity held by employee welfare trusts
8. Locked-in shares and shares which would not be sold in the open market in normal course

A simple way to understand the "free-float market cap" would be, the total cost of buying all the shares in the open market!

Finding SENSEX

First: Find out the "free-float market cap" of all the 30 companies that make up the Sensex!

Second: Add all the "free-float market cap's" of all the 30 companies!

Third: Make all this relative to the Sensex base. The value you get is the Sensex value!

Suppose, for a "free-float market cap" of Rs.100,000 Cr... the Sensex value is 4000…
Then, for a "free-float market cap" of Rs.150,000 Cr... the Sensex value will be..



Please Note: Every time one of the 30 companies has a "stock split” or a "bonus" etc. appropriate changes are made in the "market cap” calculations.

Now, there is only one question left to be answered, which 30 companies, why those 30 companies, why no other companies?

The 30 companies that make up the Sensex are selected and reviewed from time to time by an "index committee”. This "index committee” is made up of academicians, mutual fund managers, finance journalists, independent governing board members and other participants in the financial markets.



The main criteria for selecting the 30 stocks is as follows:

Market capitalization: The company should have a market capitalization in the Top 100 market capitalization’s of the BSE. Also the market capitalization of each company should be more than 0.5% of the total market capitalization of the Index.

Trading frequency: The company to be included should have been traded on each and every trading day for the last one year. Exceptions can be made for extreme reasons like share suspension etc.

Number of trades: The scrip should be among the top 150 companies listed by average number of trades per day for the last one year.

Industry representation: The companies should be leaders in their industry group.

Listed history: The companies should have a listing history of at least one year on BSE.

Track record: In the opinion of the index committee, the company should have an acceptable track record.