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

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.

Amending LODR norms, Sebi said, "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 on the basis of their average market capitalisation from July 1 to December 31 of that calendar year".

In case ranking of an entity changes for three consecutive years, the new provisions would cease to be applicable for the listed entity, providing relief to entities experiencing fluctuations in market capitalisation.

In addition, Sebi has given relaxation pertaining to filling up vacancies of key managerial personnel (KMP) with increasing the time limit to six months in certain cases from the current three months.

In cases where the listed entity is required to obtain approval of regulatory, government or statutory authorities to fill up such vacancies, these should be filled up by the listed entity at the earliest and in any case not later than six months from the date of vacancy, Sebi said.

In order to maintain uniformity, the timeline for prior intimation of board meetings has been harmonised to two working days for al types of events.

Current LODR regulations require a listed company to intimate stock exchanges about board meetings for certain proposals such as financial results, share buyback, fundraising, etc, within 2-11 working days.