The free float is a measure of actual availability of stocks of a company in the market for public investment. Free float factor is used for calculating free float market capitalization of a company. Free-float market capitalization takes into consideration only those equity shares issued by the company that are readily available for trading in the market and DVR shares are not considered in the calculation of free-float market capitalization. The goal to calculate Free Float is to distinguish between strategic (control) shareholders, whose holdings depend on concerns such as maintaining control rather than the economic fortunes of the company, and those holders whose investments depend on the stock's price and their evaluation of a company's future prospects. Free float market capitalization is used for the computation of indices.
While calculating free-float market capitalization the following categories of shareholdings are generally excluded:
Holding of equity shares by the remaining shareholders fall under the free float category.
- Shares held by founders/directors/acquirers which have control element
- Shares held by persons/ bodies with "Controlling Interest"
- Shares held by the Government(s) as promoters/acquirers
- 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
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. A Free-float factor of say 0.55 means that only 55% of the market capitalization of the company will be considered for calculation.
Following are the entities considered as non-free float and hence clubbed together and reduced from the 100% (total shareholding)
Strategic & Others appearing under Public Categories of SHP
- Promoter and Promoter Group
- Public Locked-in Shares holding (as per the Share Holding Pattern (SHP)) filed by the Company under Clause 35 of the Listing Agreement
- GDR – Promoter holding only
Strategic holdings to be determined only for those companies having a public shareholder holding more than 5% share for the corresponding quarter.
BSE is calculating the free float factor to two decimal places as illustrated below:
E.g: For ABC Ltd
|Total Equity Shares
|Promoter and Promoter Group
|Promoter Depository Receipts (DR)
|Public Shareholders Locked in
Free Float Factor in the above case is (100-48.44)/100 = 0.51