Definition of Free-float:

Share holdings held by investors that would not, in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float. In specific, the following categories of holding are generally excluded from the definition of Free-float:

• Holdings by founders/directors/ acquirers which has control element
• Holdings by persons/ bodies with "Controlling Interest"
• Government holding as promoter/acquirer
• Holdings through the FDI Route
• Strategic stakes by private corporate bodies/ individuals
• Equity held by associate/group companies (cross-holdings)
• Equity held by Employee Welfare Trusts
• Locked-in shares and shares which would not be sold in the open market in normal course

Methodology

Free-float Methodology refers to an index construction methodology that takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in Index.

Free-float market capitalization is defined as that proportion of total shares issued by the company that are readily available for trading in the market.

In other words, the market capitalization of each company in a Free- float index is reduced to the extent of its readily available shares in the market. Sensex becomes the third index in India to be based on the globally accepted Free-float Methodology.

Determining Free-float factors of companies:

BSE has designed a Free-float format, which is filled and submitted by all index companies on a quarterly basis with the Exchange.

The Exchange determines the Free-float factor for each company based on the detailed information submitted by the companies in the prescribed format. Free-float factor is a multiple with which the total market capitalization of a company is adjusted to arrive at the Free-float market capitalization.

Once the Free-float of a company is determined, it is rounded-off to the higher multiple of 5 and each company is categorized into one of the 20 bands. A Free-float factor of say 0.55 means that only 55% of the market capitalization of the company will be considered for index calculation.