The Securities and Exchange Board of India (SEBI) has recently updated the way it calculates the market value of publicly listed companies.

Under the listing obligation and disclosure requirement (LODR) rules, SEBI has changed the method for determining the market capitalization of listed companies. 

Instead of the current practice of using the market capitalization as of March 31, companies will now use the average market capitalisation over the previous six months. This change will take effect from December 31, 2024.

This new method aims to provide a more accurate representation of a company’s market size by considering its market capitalization over a longer period, rather than a single point in time.

Market experts believe that daily market fluctuations can make a company’s market capitalization misleading, and using a six-month average will give a clearer picture of its market size and position among its peers.

In addition, SEBI has allowed non-promoter shareholders to contribute to the minimum promoter’s contribution without being classified as promoters themselves.

This change aims to assist companies planning to go public by easing regulatory requirements. Previously, at least 20% of a promoter’s shares had to be locked in for a certain period after an IPO.

The new rule would come into effect from December 31, 2024. It said the ranking of compliance would be based on average capitalisation from July 1 to December 31, with December 31 as the cut-off date.

SEBI said in a notification that 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 1st July to 31st December of that calendar year.