Every three months, the FTSE 100 is tweaked so it contains the 100 biggest London-floated firms by market capitalisation – the current price of all the shares in a company.
In March, the time of the four technology companies’ promotion, rules were changed so that companies with less than a quarter of their stock available to the public qualified to be listed as FTSE 100 firms. Also, the stock benefitted from the way new economy firms are valued.
Many received high values of market capitalisation based on future promise, not historical earnings.
Psion, for example, received a market capitalisation in March of £4.7bn, despite making only £3.3m in pre-tax profits. Its value was largely based on the operating system Symbian, which it co-developed for portable devices and earned a reputation as one off the biggest threats to Microsoft.
At the time, analysts warned that the companies’ stay in the stock exchange’s biggest 100 firms could be short lived and now the firm’s share prices may suffer as a result. This is because they will also drop out of the portfolios of investment funds that automatically track the FTSE 100, creating an artificially high number of sellers on the market.
The dropped tech stocks will be replaced by Hanson, Scottish & Newcastle, Ocean Group and Bookham Technology.
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