Free float
Also called: free-float, free-float market capitalisation, free float market capitalisation
The part of a company's shares that is actually available to trade, leaving out big holdings by promoters and the government.
Not every share of a company changes hands. Promoters (the founding family or parent company) often hold half or more and rarely sell. The government holds large stakes in public sector companies. Free float counts only the rest.
The Sensex and Nifty 50 weight their members by free-float market capitalisation. So a company with a large promoter stake counts for less in the index than its full market cap would suggest.
Example
A company is worth 1,00,000 crore rupees and its promoters own 60 percent. The other 40 percent is its free float, so its free-float market cap is 40,000 crore. That smaller number decides its weight in an index.
Watch out
When few shares are available to trade, modest buying or selling can move the price a long way. A small free float is one reason some shares swing far more than their business does.
Learn it properly in
Chapter 1.2: Sensex and Nifty: what the two numbers on the news actually measure