What is the liquidity adjustment factor?

LAF is liquidity adjustment factor. These are common ways by which RBI or the
central bank mop off excess liquidity from the market to control inflation or
rising interest rates. One of the techniques is through buying or selling
securities from banks, financial institutions. These short term securities
always purchased on a repuchase agreements i.e. they can be bought back by any
of the parties. While the Central bank is buying these, the applicable rate is
called REPO rate and when sold back it is called Reverse Repo rate. They are
different because the role of the parties change from buyer to seller and vice
versa.
The “Liquidity Adjustment Factor” is calculated by sorting the
Selection Pool Securities into deciles based on each Selection Pool
Security’s ratio of its average daily volume over the prior three months
(taking into account interbroker cross trades) to the number of shares
outstanding (i.e. the volume-to-shares ratio).