We have all come across the terms Market Capitalization and Free Float Market Capitalization, haven't we? But what exactly do these terms mean? And why are they important? Do not worry, this blog will explain both concepts in a simplified manner.

What is Market Capitalization?

Market Capitalization refers to the total market value of a company's outstanding shares. It is calculated by multiplying the total number of shares of a company by the market price of each share. For example, let us consider ABC Limited, which has 50,000 outstanding shares with a market price of Rs.35 per share. In this case, the Market Capitalization of ABC Limited would be calculated as 50,000 shares X Rs.35 = Rs.17,50,000.

What is Free Float Market Capitalization?

The Free Float Market Capitalization represents the portion of a company's share capital that is available freely for trading on the stock market. It excludes shares held by promoters and promoter entities. Which makes sense doesn’t it? As the shares held by the promoters or promoter entities are held for the long term and are not freely traded in the market. So why consider those many shares to calculate the Market Capitalization?

Continuing with the example of ABC Limited, let us assume that out of the total 50,000 shares, 10,000 shares are held by the promoters of ABC Ltd, and 5,000 shares are held by the government. Thus, the balance of 35,000 shares is freely available in the market for trading. Assuming the market price to be Rs.35 per share, the 'Free Float Market Capitalization' of ABC Limited is 35,000 shares X Rs.35 = Rs.12,25,000.

Importance of Free Float Market Capitalization:

Free Float Market Capitalization plays a vital role in classifying a company as small-cap, mid-cap, or large-cap. It provides insights into the company's size and market value, which helps investors and analysts make informed decisions.

Free Float Market Capitalization is also used to determine the constituents of various stock market indices. For instance, in the case of NIFTY50, the top 50 companies with the highest Free Float Market Capitalization are included in the index.

And speaking of the NIFTY50, there's important news regarding an upcoming reconstitution in the index. A new company is being added to the NIFTY50 Index. Who will be joining the NIFTY50? When is the official inclusion date? And most importantly, what are the reasons behind this decision? All these questions will be answered in my upcoming video, releasing on Wednesday, July 5th, 2023, at 9:30 PM sharp.

All these questions are answered in the video below. Don't forget to watch the full video.