Summary: SEBI has amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, revising how market capitalization is determined for listed entities. Previously, market capitalization was calculated based on a single day’s value (March 31). However, from December 31, 2024, the new criteria will consider the average market capitalization over a six-month period (July 1 to December 31), providing a more stable assessment. The amendment also introduces a “sunset clause” that exempts companies from certain compliance requirements if they fall below the relevant market capitalization threshold (rankings of 100, 250, 1000, or 2000) for three consecutive years. This aims to alleviate the long-term compliance burden for companies whose market value drops consistently. Additionally, SEBI has provided a three-month window for companies to ensure compliance with the applicable provisions, offering flexibility in adjusting to these regulations. Key provisions based on market capitalization include the appointment of independent women directors, risk management committees, and dividend distribution policies, among others. These changes are part of SEBI’s efforts to align regulatory obligations with market realities while easing the compliance process for fluctuating market values.
Market Capitalization Overview
Market Capitalization is the total market value of a company’s outstanding shares of stock. It is calculated by multiplying the current share price by the total number of outstanding shares.
However, under the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, (SEBI (LODR) Regulations, 2015), there are many provisions which would apply upon the Company on the basis of its Market Capitalization.
Currently, the Market Capitalization as on March 31 of every year used for determining the applicability of the said provisions.
However, the Securities Exchange Board of India (SEBI) via amending the Regulation 3 of SEBI (LODR) Regulations, 2015, has established the new criteria for determining the market capitalization along with sunset clause which would apply for determining the eligibility of the numerous regulations that would apply if the Company falls under the ranking 100/ 250/ 1000/ 2000 market capitalization.
Let’s discuss the OLD CRITERIA vs. NEW CRITERIA for determining market capitalization.
| Old Criteria | New Criteria |
| How to Calculate
Market Capitalization currently calculated by the stock exchange on the basis of single day i.e. as on March 31. Purpose of Amendment The market capitalization of a listed entity keeps fluctuating on a daily basis based on market dynamics and therefore, an average of market capitalization figures over a reasonable period of time (6 months) is required. |
Market Capitalization shall be determined by the stock exchange on the basis of average market capitalization from July 01 to December 31 of that calendar year w.e.f. December 31, 2024.
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| Introduce a sunset clause (cooling period) along with an interim period provision
Currently, the provisions of SEBI (LODR) Regulations, 2015, which become applicable to listed entities on the basis of market capitalization criteria shall continue to apply to such entities even if they fall below such thresholds. Precisely Once applied, compliance is always required. Purpose To Facilitate Ease of Doing Business and Recognizing the Cost Associated with the Long-Term Compliance for Listed Entities Whose Market Capitalization falls and continues to remain below the applicability threshold. Therefore, it is suggested to have a sunset clause of 3 consecutive years (during which the ranking of the entity remains outside the applicability threshold) after which the provisions shall not be applicable to such companies till they remain outside the applicability threshold.
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However, the SEBI via amended the Regulation 3(2) of the SEBI (LODR) Regulations, 2015, has introduced the provision of the sunset clause for compliance with the provisions applicable on the basis of market capitalization.
Sunset Clause Sunset Clause means if the market capitalization of the listed entity falls such that its ranking (means ranked as 100/250/1000/2000 on the basis of market capitalization) remains outside the applicability range for three consecutive years, then the listed entity need not comply with such provisions of the regulations that are not applicable to it due to its current ranking. Let’s understand with the instance: – There is provision under SEBI (LODR) Regulation, 2015, which provides that top 1000 listed entities on the basis of market capitalization shall have at least one independent woman director in its Board. For example: – there is company ABC Ltd whose market capitalization as on December 31, 2024 is such that the Company ranked as 990. According to it, the Company shall comply and ensure that it has at least one-woman director in its Board from FY 2025-2026. Then, the Company on the basis of its market capitalization as on December 31, 2025, December 31, 2026 and December 31, 2027, ranked as 1010, 1200 and 1021 respectively, then, in this scenario, as the Company for next three consecutive years was outside the rank which was required for applicability of the said provisions. Thereby, the Company from FY 2027-2028 is not required to comply with the said provisions until the Company again fall and ranked under 1000 on the basis of its market capitalization. However, applying once does not necessitate continuous compliance. |
| Introduce a minimum time span of 3 months to ensure compliance
Currently, as the market capitalization determined on March 31, then, the Company since from the beginning of next financial year (i.e. April 01) has to ensure the applicability of the provisions which applies upon the basis of market capitalization. Purpose To provide sufficient time to ensure compliance with the applicable provisions. |
However, the SEBI, via amending the provisions, has provide a time span for ensuring the compliance of the provisions that would apply on the basis of market capitalization. Applicability: – After a period of three months from December 31 (i.e. April 1) or from the beginning of the immediate next financial year, whichever is later. As the Market Cap would determine on December 31, if any company falls under the same, then the Company would get minimum time of 3 months to ensure the Compliance with the applicable provisions. |
Let’s discuss the provisions under the SEBI (LODR) Regulations, 2015, that apply based on Market Capitalization.
| S.no. | Regulation | Requirement | Applicability by market capitalization |
| 1. | Reg. 17(1)(a) | At least one Independent woman director in the Board of Directors | Top 1000 |
| 2. | Reg. 17(1)(c) | Not less than six directors in the Board of Directors | Top 2000 |
| 3. | Reg. 17(2A) | Quorum for board meeting – 1/3rd of its total strength or 3 directors, whichever is higher | Top 2000 |
| 4. | Reg. 21(5) | Risk Management Committee | Top 1000 |
| 5. | Reg. 25(10) | Directors and Officers insurance for all the independent directors | Top 1000 |
| 6. | Proviso to Reg. 30(11) | Rumour verification | Top 250 |
| 7. | Reg. 34(2)(f) | Business Responsibility and Sustainability Report | Top 1000 |
| 8. | Reg. 43A | Dividend Distribution Policy | Top 1000 |
| 9. | Reg. 44(5) | AGM within 5 months from date of closing of financial year | Top 100 |
| 10. | Reg. 44(6) | One-way live webcast of proceedings of AGM | Top 100 |
Conclusion:- The recent amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, mark a significant shift in how market capitalization is determined and its regulatory implications for listed entities. Previously, market capitalization was calculated based on a single day (March 31), which did not account for the fluctuations in a company’s value over time. The new criteria, effective from December 31, 2024, adopts an average market capitalization over a six-month period, providing a more stable and realistic assessment. This change is aimed at facilitating better compliance management, recognizing the challenges that arise from market volatility.
A key amendment introduces a sunset clause, ensuring that if a company falls below the applicable threshold for three consecutive years, it is no longer required to comply with certain provisions. This clause addresses the long-term burden of compliance for companies whose market capitalization consistently drops below the threshold. Additionally, a compliance period of three months has been provided, giving companies sufficient time to adjust to the new regulations and ensure they meet the necessary requirements.
In summary, these changes are designed to provide more flexibility and predictability for companies, aligning regulatory obligations with market realities and reducing the long-term compliance burden when a company’s market capitalization declines. These amendments are a step towards enhancing ease of doing business while maintaining necessary governance standards.
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