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NISM Certifications · NISM-Series-XV: Research Analyst · Introduction to Securities Market

Stock X has a free-float market capitalisation of Rs 600 crore out of a total market capitalisation of Rs 1,000 crore. An index uses free-float weighting and the total free-float market capitalisation of all its constituents is Rs 30,000 crore. What is the weight of Stock X in the index?

The weight is 2.00%. In a free-float index, weight equals the stock's free-float market capitalisation divided by the index's total free-float market capitalisation, so 600 divided by 30,000 equals 0.02. Using total market capitalisation of Rs 1,000 crore would wrongly overstate it.

  1. A3.33%
  2. B2.00%Correct
  3. C6.00%
  4. D1.20%

Explanation

Weight = stock free-float market cap / total index free-float market cap = 600 / 30,000 = 0.02 = 2.00%. Using the full Rs 1,000 crore gives 3.33%, which ignores free-float. Check: 2% of 30,000 = 600. 6% would come from dividing 600 by 10,000, a wrong base.

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