More free-float stocks needed to reduce volatility: NSE CEO

Mumbai: More 'Free-Float' stocks are needed to improve market depth as well as enhance liquidity in the Indian equity indices, opined a top official of the National Stock Exchange.

In market parlance, free-float stock levels indicate the overall public ownership of a listed company.

Historically, stock of a listed firm with large free-float size tends to be more stable, whereas, the ones with smaller public exposure have traditionally been volatile.

"An increase in free-float stock would go a long way in improving market depth and enhancing liquidity, resulting in better price discovery and lower volatility," said NSE's Chief Executive and MD Vikram Limaye.

"Lower free-float often results in higher volatility and distorted price discovery which does not bodes well for minority shareholders."

Lately, some stocks have suffered from panic selling due to social media rumours, thereby flaring volatility and eroding market value.

Industry data showed that key Indian equity markets have comparably lower levels of free-float stocks than their global counterparts. Furthermore, Limaye elaborated that besides increasing market depth, free-float stocks can aid in attracting more foreign funds.

"The long-term positive implications of higher free-float in terms of wider ownership, greater market depth and better governance standards significantly outweigh the near-term headwinds," he said. "This is an important aspect for developing Indian equity markets, which is crucial given the role markets play in providing the much-needed capital to fund growth and investments."