SEBI changes rule to determine m-cap of listed firms; 6-month average to be used now

Sebi revamps market capitalisation calculation method for listed companies under LODR rules to promote ease of doing business.

Markets regulator SEBI has revamped the method for calculating the market capitalisation of listed companies under the Listing Obligations and Disclosure Requirements (LODR) rules.

Instead of using the market capitalisation of a single day (currently March 31), listed companies will now use the "average market capitalisation" for a six-month period.

Market experts believe the market capitalisation of a listed entity keeps fluctuating on a daily basis based on market dynamics and, therefore, an average of market capitalisation figures over a reasonable period of time (six months) would more accurately reflect the market size of the listed entity and consequently the ranking, vis-a-vis its peers.

The changes came after a recommendation of an expert committee chaired by SEBI's former whole-time member S.K. Mohanty in a bid to promote ease of doing business. The amendment aims to specify a defined period for calculating average market capitalisation.

The new amendment would come into force with effect from December 31, 2024, the Securities and Exchange Board of India (SEBI) said in a notification on May 17.

The ranking of compliance would be based on average market capitalisation from July 1 to December 31, with December 31 as the cut-off date.

After determining the market capitalisation on December 31, there would be a three-month transition period, or from the beginning of the immediate next financial year, whichever is later, before the relevant provisions become applicable.