Definition
Free-float Market Capitalisation
Free-float market capitalisation values a company using only the shares available for public trading, excluding locked-in holdings of promoters, governments and strategic investors.
Indian benchmark indices such as the Nifty 50 and BSE Sensex are weighted by free-float market cap, so a company with a large promoter stake has a smaller index weight than its full market cap would suggest. This better reflects the shares an index fund can actually buy.
The investible weight factor (IWF) translates total market cap into free float. As promoter or strategic holdings change, the IWF is revised at the next review, altering index weights and triggering rebalancing trades by passive funds, a key channel through which index inclusion impact flows into prices.
Related terms
- Index ConstructionIndex construction is the set of rules defining how an index is built, including eligibility criteria, weighting scheme, number of constituents and selection thresholds for liquidity and size.
- Index RebalancingIndex rebalancing is the periodic adjustment of constituent weights back to their methodology-defined levels, accounting for price moves, capping limits and corporate actions, without necessarily changing the membership.
- Index Inclusion ImpactIndex inclusion impact is the price and volume effect on a stock when it is added to or removed from a widely tracked index, driven by forced trading from passive and benchmarked funds.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.