The way Indian indices are designed leaves a lot to be desired. Companies with profits in excess of Rs 20000 crores are having weightages of less than 0.8%. Companies with profits of Rs 5000-6000 crores are having weightages as high as 6- 7%. This is a huge disparity created by free float factor. In some cases like ICICI Bank, there are no identifiable promoters and hence the free float factor is 100%. In many PSU companies, even stake held by other PSU companies in those companies are considered as promoter stake and not considered while calculating free float. However in institutions like Axis
Bank and ICICI Bank, where original promoters were Government of India and even now various PSU companies hold stake in these companies, some of the stake is not considered as promoter’s stake but free float stake.
Somebody needs to raise a voice and correct this disparity. The entire index system is being manipulated and that is not good for the health of the markets, investors and economy. Very few indices in the World run on free float. Most Global indices have equal weightage for stocks making it difficult for a few stocks to manipulate the indices. Nifty constitute around 50 stocks. About 13-14 stocks constitute 70% of its weightage due to this humbug called freefloat. Rest 36 stocks have only about 30 weightage combined. Normally as a traditional measure, stocks having higher promoter stake were considered safer bets but now stocks with very high free float are being marketed. The risk with such high free float stock is that, whenever things turn, they could see severe pain. So there are lot of things to ponder about the construction and the system of index management in India.