How to Analyse Share Liquidity and Free Float, in Order

The work proceeds in a fixed order: the analyst fixes the basis and the window, states the size intended for trading, computes what actually trades in rupees, converts that size into days at the full market, reads the free float to see how much exists to trade at all, then checks what an average conceals. The answer is always relative to a size.

The order exists because each step supplies the denominator the next step divides by, and a step taken out of turn leaves the analyst dividing by something not yet defined. Volume, delivery and turnover are each defined separately, as is the reason activity constrains research work before analysis begins. The order below turns those definitions into a sequence that can be run on a Tuesday morning and finished before lunch, with an output that can be handed to somebody else.

Each step is a routing instruction, not an explanation. A procedure that stops to define its inputs stops being a procedure, so where a step names a measure it names it and moves on. The steps read as a checklist to be ticked, and the worked run on Sarvani Coatings Limited, an invented maker of industrial coatings, carries the arithmetic.

First, what basis are the figures actually on?

Before a single division, four things about the numbers need settling: which venue they came from, whether they are one trading sessionOne day on which the exchange is open and trades are matched. Indian exchanges are closed at weekends and on declared holidays, so a month has roughly twenty of them. or an average of many, how long the window is, and the date the window ends. Sarvani Coatings Limited is listed on both Indian exchanges, so a figure taken from one venue is not the figure for the share, it is the figure for that venue, and adding the two together is a decision to be made consciously rather than by accident.

A liquidity figure taken from a single unusual session is the commonest way this whole analysis goes wrong at the very first step. A result day, an index rebalance, a block trade or a stray news item can double a session, and the analyst who happened to pull the screen that evening carries that double through every division that follows. Think of a vegetable seller judging a street by the crowd on the one morning a wedding procession passed through it. The count is honest. The street is not that street.

The basis is written down as a sentence before anything further proceeds: daily average traded value, both venues combined, over the stated window, as at the date on the screen. Everything below runs on that sentence, and if somebody later disputes a figure, the dispute is almost always about the basis rather than the arithmetic.

Second, how large is the position actually intended?

The intended size is stated now, in rupees, before any figure is computed. In this guide the size is Rs 250 crore, fixed at this point rather than derived later because every number in steps four and five divides by it. Without a size there is no question, only a curiosity.

The same share is entirely tradeable for one holder and untradeable for another on the same day at the same price. Liquidity has no answer in the abstract. A household putting Rs 40,000/- into a share and a fund putting Rs 250 crore into it are looking at one screen and two completely different problems. The screen cannot tell them apart. Only the size can. A procedure that begins by looking at a figure rather than by naming a size cannot produce an answer at all, and the honest response to the question in the box above is another question.

Third, what actually trades, in rupees?

Two figures belong here, not one. The first is average daily traded value: for Sarvani Coatings, about Rs 42 crore a session on the illustrative figures carried through this guide, as at 28 August 2026. The second is the delivery share beside it, about 32 per cent, and 32 per cent of Rs 42 crore is about Rs 13.44 crore a session. Both are multiplied out and recorded; the headline alone is not enough to carry forward.

A count of shares forces a conversion later, at the exact moment it can least be afforded. The work is done in rupees rather than share counts. Average daily volume for Sarvani Coatings is about 8.64 lakh shares, and at the illustrative Rs 486/- that is the Rs 42 crore above. Both are true. But the intended size is in rupees, the free float reached in step five is in rupees, and every division that follows is rupees over rupees. The conversion happens once, here, and never again. An analyst who keeps a volume figure in shares and a size figure in rupees will eventually divide one by the other, and the result will look like a number.

The second figure, the delivery portion, is the one most procedures never compute at all. About two thirds of every session's activity settles without any change in beneficial ownershipWho actually holds the share at the end of the day, as recorded in a depository account, rather than who bought and sold it during the session. Intraday positions opened and closed the same day never reach it., so a session that moves Rs 42 crore of value moves only about Rs 13.44 crore of actual holdings. Both figures are real activity. The two figures answer different questions, and both belong in writing before step four.

Fourth, how many days does the intended size represent?

The size is divided by each of the two figures from step three. Rs 250 crore over Rs 42 crore is about 5.95, reported as about 6.0 days. Rs 250 crore over Rs 13.44 crore is about 18.6 days. Both divisions are done and both results written down.

The arithmetic assumes a single participant alone in the market for the entire period, and no market is ever that empty. Each of the two figures is a floor rather than an estimate. Everyone else who wants to trade that share is also there, so the number of days actually needed is longer, and by an amount this arithmetic cannot supply. Reported as a floor, the figure is honest. Reported as an expected time to build the position, it quietly promises something the division never supported. A floor and a prediction are different claims, and the figure is stated as a floor.

The two results are far apart. Six days against nearly nineteen, from the same position and the same session, differing only in which denominator was taken to be the market. Neither is wrong. Both denominators are defensible, so the procedure shows both rather than choosing one and hiding the other. A reader handed only the six is being told something narrower than they think.

Fifth, how much of the share exists to be traded at all?

Now read the free float. The free float answers a different question from anything computed so far. Sarvani Coatings has 24.00 crore shares in issue at the illustrative Rs 486/-, giving a market capitalisationThe number of shares in issue multiplied by the quoted price. It values the whole issued capital, including the portion nobody is willing to sell. of Rs 11,664 crore. The shareholding patternThe disclosure a listed issuer files each quarter setting out who holds its shares, split into promoter, institutional and public categories. shows promoter and promoter groupThe controlling holders of an issuer and the persons and entities acting with them, identified as such in the filings a listed company makes. at 52.4 per cent, so 47.6 per cent, or 11.424 crore shares worth about Rs 5,552 crore, is the free float. Rs 250 crore against that is about 4.5 per cent.

Traded value shows how much moves; free float shows how much exists to move at all, and no amount of the first substitutes for the second. Traded value and free float can point in opposite directions. A large traded value sitting on a small float does not mean a large position can be assembled: it means a modest pool of shares is changing hands over and over, often between people who never intended to hold anything overnight. Picture a small vegetable market where the same twenty crates are resold between traders all morning. Turnover looks busy. Nobody has grown any more vegetables.

The position as a share of the float changes the character of the question. Hold that figure from this step. Six days of trading is a scheduling problem. Four and a half per cent of everything available to buy is a structural one, and the two do not scale together.

Sixth, what is the average quietly hiding?

An average daily figure is a single number standing in for twenty different sessions, and it is precisely the statistic that conceals the sessions that matter most. Three checks belong here, and each takes minutes.

The first check is whether a handful of unusual sessions is carrying the average. Take a month of twenty sessions at an average of Rs 42 crore. Twenty sessions at Rs 42 crore is Rs 840 crore of traded value in total. Now suppose three of those sessions ran at Rs 105 crore each, together Rs 315 crore. The remaining seventeen sessions share Rs 525 crore, an ordinary session of about Rs 30.88 crore. The same Rs 250 crore position that was 6.0 days on the headline average becomes about 8.1 days on an ordinary session, and about 25.3 days once the delivery share is applied to that ordinary session. Nothing about the share changed. Only the honesty of the denominator did. The split into three unusual sessions and seventeen ordinary ones is an arithmetic illustration, and the same subtraction runs on whatever distribution the venue actually shows.

The second check is the quiet stretch. Averages taken across a busy quarter say nothing about a fortnight in which the share barely trades, and the fortnight is exactly when a holder who needs to reduce a position discovers what liquidity meant. Look at the thinnest run in the window, not the mean of the window.

The third check is concentration, and it is the one that changes conclusions most often. Sarvani Coatings' shareholding pattern shows foreign portfolio investorsOverseas funds registered to invest in Indian listed securities under a specific regulatory route, reported as their own category in a shareholding pattern. at 18.2 per cent of the issued capital and domestic institutionsIndian mutual funds, insurers, pension funds and banks holding shares on behalf of others, reported as a single category in a shareholding pattern. at 14.6 per cent, with retail and others at 14.8 per cent. Restate those against the float rather than the issued capital and the picture sharpens: the foreign portfolio block alone is about 38.2 per cent of everything free to trade, worth about Rs 2,122.8 crore. At Rs 42 crore a session, the entire market needs about 50.5 sessions to turn over a block that size. One holder deciding to reduce that block would be the market for a stretch, and no average daily figure anywhere on the screen shows it.

Seventh, when does the work stop?

The work stops when five things are in the note and not before: the basis is written as a sentence, the intended size is stated in rupees, days at the full market is computed and labelled a floor, the same division is repeated on the delivery figure, the position is expressed as a share of the free float, and the concentration check is recorded. The list is the output. Hand it over, and the writing stops there.

Liquidity is a property of a holding at a size, not a property of a company. The procedure therefore never produces a verdict that the share is liquid. A portfolio manager asking the question wants a yes or a no, and the analyst who supplies one sounds decisive. The temptation at this point is enormous. The temptation is to be resisted. The figures handed over let somebody else decide, at their size, on their timetable, with their tolerance for taking longer than planned. A verdict takes that decision away from them and hides the arithmetic that would have let them check it.

What is never a step in this order?

Two things. The first is describing a share as liquid or illiquid without naming a size. Such a sentence reads like a finding and carries no information. The second is treating a liquidity figure as a property of the issuer rather than of a holding. An issuer does not have a liquidity. A specific quantity of its shares, in the hands of a specific holder, on a specific screen, has a time and a cost attached to moving, and that is what all of this measures.

There is a third thing worth naming because it is subtler. Do not let the procedure drift into judging whether the price is right. Every figure here is about the arithmetic of moving a quantity, and none of it touches whether the price of that quantity is right. Moving a quantity and pricing it are separate questions asked on separate days, and mixing them is how a size constraint quietly becomes an argument about value.

What does the whole order look like, run start to finish?

The complete run on Sarvani Coatings Limited at a stated size of Rs 250 crore follows, on the illustrative market figures carried through this guide as at 28 August 2026.

Read the table downward and notice that no row contains an opinion. Every entry is either an input somebody chose or a division somebody can repeat. A note built that way is checkable by the person who receives it, and being checkable is the only real test of a procedure like this.

Who runs this, and on what morning?

A fund manager runs it before a position goes to the investment committee. The committee's first question is how long the position takes to establish and unwind, and an answer without a floor attached invites the follow up nobody can answer. The note in the figure above is roughly what gets attached to the proposal.

Coverage costs the same regardless of how much of it can be acted on. A sell side analyst runs it before deciding how much work a share deserves. A treasury team at a company holding shares in another issuer runs it before a board meeting where a disposal is discussed. The board will ask over how many weeks the sale would run. And a household holding a few thousand rupees of a share runs a much shorter version, usually in seconds. At that size the days figure rounds to nothing and only the price matters. The procedure does not change with the size of the holder; only the number of steps that produce a figure worth reading does.

In every case the discipline is the same: the person who asks the question supplies the size, and the person who runs the arithmetic supplies the floors and refuses the verdict. Where that division of labour breaks down, an analyst ends up deciding something on behalf of somebody whose constraints they do not know.

Sarvani Coatings Limited, Nandivarman Paints Limited, Kesaria Surface Solutions Limited, Thottam Chemicals Limited and the analyst Meghna Iyer are invented.
Educational material. Not advice on any investment, tax, budget or market position.