3.7What is free-float market capitalization?
1What is it?
Free-float market cap counts only the shares that are freely available to trade, leaving out shares held by promoters, the government and other locked-in holders.
2Why does it exist?
Promoter shares rarely trade. Free float better reflects what investors can actually buy, so the Nifty and Sensex use it to weight companies.
3Calculation
Free-float mcap = Price × Shares × Free-float %
- Price ₹500, shares 100 crore, promoters hold 60% (so free float is 40%).
- Full mcap = ₹500 × 100 cr = ₹50,000 cr
- Free-float mcap = ₹50,000 cr × 40% = ₹20,000 cr
Free-float mcap = ₹20,000 crore.
4Quick revision
- Excludes promoter and locked-in shares.
- Used to weight major indices.
- Always ≤ full market cap.
5Knowledge check
Q1. Why exclude promoter shares?Show answer
They rarely trade, so they are not really available to investors.
Q2. Full mcap ₹1 lakh cr, promoter holding 75%. Free-float mcap?Show answer
₹25,000 crore.
Q3. Do Nifty weights use full or free-float mcap?Show answer
Free-float.