SEBI revamps market cap computation basis for LODR compliance
Market regulator SEBI has modified the basis for the computation of market capitalisation of listed companies under its LODR regulations. As against an earlier practice of determining the applicability of provisions linked to market capitalisation on a single day’s market cap (currently calculated on March 31), SEBI has now introduced a concept of ‘average market capitalisation’ for a defined period.
This latest SEBI move will have a bearing on as many as ten provisions in the Listing Obligations and Disclosure Regulations (LODR) Regulations that apply to listed entities based on market capitalisation, experts said.
These provisions —whose applicability on a listed entity is decided by the ranking of market capitalisation —related to the appointment of an independent woman director in the board of directors; not less than six directors in the Board; quorum for board meetings; risk management committee; rumour verification; directors and officers insurance for all the independent directors; dividend distribution policy; Business Responsibility and Sustainability Report; AGM within five months from date of closing of financial year and one way live webcast of proceedings of AGM, they said.
New method
Under the new method, instead of calculating the ranking based on the market capitalisation of entities as of March 31, SEBI has now said that December 31 will be taken as the cut-off date. The ranking will be determined on that date instead based on average market capitalisation figures of listed entities during the preceding six months (July 1 to December 31).
After determination of the ranking on December 31, a time period of three months (or beginning of immediate next financial year, whichever is later ) has been provided before the relevant provisions of the LODR regulations (market capitalisation based compliance requirements) become applicable to a listed entity for the first time or after an interim break period.
Market dynamics
Explaining the rationale for the latest SEBI move to revamp the basis of computation of market capitalisation for ranking of listed entities under LODR, sources noted that market capitalisation of a listed entity keeps fluctuating on a daily basis based on market dynamics.
Therefore, an average of market capitalisation figures over a reasonable period ( 6 months in this case) was seen to accurately reflect the market size of listed entity and consequently the ranking, vis-a-vis its peers.
This latest move is an outcome of the recommendations of a SEBI appointed expert committee (chaired by former wholetime member S K Mohanty) for facilitating ease of doing business, sources said.