Tata Consultancy Services (TCS) is India’s most valuable company by some distance. But, when it comes to the stock markets, the Tata group firm’s significance slips several notches. On free-float market capitalisation—used by major index providers to compute weights — TCS is ranked eighth in the country. This is on account of high shareholding of promoter Tata Sons at nearly 72 per cent in the technology major. TCS’ promoter holding is one of the highest among top companies
in the country and only slightly below the maximum threshold of 75 per cent.
Infosys, with a market cap of just 40 per cent of that of TCS, has greater standing in the benchmark indices because of low promoter shareholding. Similarly, companies
such as Larsen and Toubro (L&T) and ICICI Bank — not even among the country’s top 10 companies
in terms of market value — have more weight in the benchmark indices and thus have a greater bearing on stock market performance.
On the other hand, Hindustan Unilever and ONGC — who rank fifth and ninth in terms of overall market cap — are not even among top 10 weights in the indices as over two-thirds of their shares are held by the promoters. HDFC Bank, Reliance Industries and Housing Development Finance Corporation (HDFC) — with free-float market cap of over Rs 3 trillion — have the highest weight in the Sensex and the Nifty.
Free-float market cap excludes shares held by promoters, special trusts or those under lock-in. Such shares are available for trading freely and help in better price discovery and minimise volatility. Companies with low free-float limit large institutional investors’ participation, are volatile and could be prone to manipulation.
On an average, most top global companies have much lower free-float compared to India.