SEBI revises method to calculate market capitalisation of listed companies

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

Market experts argue that the market capitalisation of a listed entity fluctuates daily due to market dynamics.

Therefore, using an average market capitalisation over a reasonable period, such as six months, would more accurately represent the market size of the listed entity and its ranking compared to its peers.

The changes were implemented following a recommendation from an expert committee chaired by SEBI's former whole-time member S K Mohanty, aiming to promote ease of doing business.

The amendment specifies a defined period for calculating average market capitalisation.

According to a SEBI notification on May 17, the new rules will take effect on December 31, 2024.

Compliance rankings will be based on the average market capitalisation from July 1 to December 31, using December 31 as the cut-off date.

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