SEBI Changes Market Cap Math, Opts For 6-Month Average

Markets regulator SEBI has modified the way to calculate the market capitalisation of a public listed entity under the Listing Obligations and Disclosure Requirements (LODR). 

As per the amendments, the listed companies will now use the average market capitalisation over the span of six months, to provide a more accurate market size of the company, instead of single day market capitalisation. 

This new amendment will come into effect from December 31, 2024 and the ranking of compliance will now be based on the average market capitalisation between June 1 to December 31. Earlier, the ranking was based on the market cap of the company as of March 31, or the closing of the fiscal year. 

Post the determination of market capitalisation, there would be a three month transition period or until the beginning of the next fiscal year, whichever is later, before the relevant provision is applied.

The fresh development comes on the heels of a recommendation offered by an expert committee chaired by former SEBI member SK Mohanty on the ease of doing business.  

This amendment is said to offer an accurate depiction of the market capitalisation of an entity and consequently its rank rather than a market cap of a single day, as that is susceptible to daily fluctuations. 

Besides this, SEBI has offered a relaxation to companies filling the vacancy of a key managerial personnel (KMPs). The market regulator has now increased the time limit to fill such vacancies from three months to six months. 

The fresh developments have come on the heels of SEBI amended SEBI (Issue of Capital and Disclosure Requirements) Regulation 2018 to facilitate the ease of doing business for companies heading for IPO or funding raising.

These amendments removed the requirement of 1% security deposit in public/rights of equity shares and promoter group entities and non-individual shareholders with more than 5% of post-offer equity share capital will be allowed to contribute towards minimum promoters’ contribution (MPC).

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