Sebi Embraces Six-Month Average Market Cap for Fairer Company Rankings

SEBI adopts a revised approach to determine market cap rankings, aiming for accuracy and reducing compliance burden. Compliance deadlines are tied to rankings, with provisions for smooth transition and cessation after three years of non-compliance.
Sebi Embraces Six-Month Average Market Cap for Fairer Company Rankings

The Securities and Exchange Board of India (SEBI) has introduced a new approach to determine the market capitalization-based rankings of listed companies. The regulator has shifted from a single-day market cap calculation to a more comprehensive methodology that takes into account the average market cap over a six-month period.

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Under the new system, stock exchanges are required to compute the rankings at the end of each calendar year, considering the average market cap from July 1 to December 31. This change aims to provide a more accurate representation of a company’s market value, as opposed to the previous method, which relied solely on the market cap on March 31.

The market cap-based rankings are crucial in ensuring compliance with various Sebi mandates and regulations. For example, the top 100 listed companies must adhere to rumour verification norms starting from June 1, while the top 250 companies have a compliance deadline of December 1. Additionally, Sebi has established a glide path for the top 100, top 500, and top 1,000 listed companies based on their market cap rankings for compliance with ESG-related norms and corporate governance matters.

Sebi’s decision to revise the calculation methodology stems from representations made by market stakeholders, who highlighted that using a single day’s market capitalization to determine the applicability of relevant Sebi Listing Obligations and Disclosure Requirements (LODR) Regulations resulted in an increased compliance burden for listed companies.

To facilitate a smooth transition, Sebi has granted a three-month window for companies that become subject to any new mandate for the first time under the revised rankings. Furthermore, if a listed entity remains outside the applicable threshold for three consecutive years, the provisions that apply based on market capitalization criteria will cease to apply at the end of the financial year following December 31 of the third consecutive year.

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