SEBI forms new formula to determine m-cap; to use 6-months average

The Securities and Exchange Board of India (SEBI) has updated the method for calculating the market capitalisation of listed companies under the Listing Obligations and Disclosure Requirements (LODR) rules. Previously, market capitalisation was calculated based on a single day's data, typically on March 31. However, the new method will use the "average market capitalisation" over a six-month period.

New formula for m-cap

Market experts support this change, noting that daily fluctuations in market capitalisation due to market dynamics make a single-day calculation less accurate. By averaging the market capitalisation figures over six months, the new method aims to provide a more accurate reflection of a company's market size and its ranking among peers.

This change stems from a recommendation by an expert committee chaired by SEBI's former whole-time member, S K Mohanty. The committee aimed to enhance the ease of doing business and bring more precision to market capitalisation calculations. The new amendment will take effect on December 31, 2024, according to a SEBI notification issued on May 17.

Under the revised rules, compliance ranking will be based on average market capitalisation from July 1 to December 31, with December 31 serving as the cut-off date. After determining the market capitalisation on December 31, there will be a three-month transition period, or from the start of the immediate next financial year, whichever is later, before the relevant provisions become applicable.

SEBI stated, "Every recognised stock exchange shall, at the end of the calendar year i.e., December 31, prepare a list of entities that have listed their specified securities, ranking such entities based on their average market capitalisation from July 1 to December 31 of that calendar year." If an entity's ranking changes for three consecutive years, the new provisions will cease to apply to that entity, offering relief to those experiencing significant market capitalisation fluctuations.

Additionally, SEBI has extended the time limit for filling key managerial personnel (KMP) vacancies from three months to six months in certain cases. If a listed entity needs regulatory, government, or statutory approval to fill such vacancies, these should be addressed as soon as possible, but no later than six months from the vacancy date.

To maintain uniformity, SEBI has harmonised the timeline for prior intimation of board meetings to two working days for all event types. Current LODR regulations require listed companies to notify stock exchanges about board meetings for specific proposals, such as financial results and share buybacks, within a 2-11 working day range.

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