Module 1 Introduction to Stock Markets

Chapter 11

Five Corporate Actions and Its Impact on Stock Prices

352

Ch11title

11.1 – Overview

Corporate actions are initiatives taken up by a corporate entity that bring in a change to its stock. There are many types of corporate actions that an entity can choose to initiate. A good understanding of these corporate actions gives a clear picture of the company’s financial health, and also to determine whether to buy or sell a particular stock.

In this chapter, we will be looking into the five most important corporate actions and their impact on stock prices.

A corporate action is initiated by the board of directors, and approved by the company’s shareholders.

dividend111.2 – Dividends

Dividends are paid by the company to its shareholders. Dividends are paid to distribute the profits made by the company during the year. Dividends are paid on a per share basis. For example, during the financial year 2012-13 Infosys had declared a dividend of Rs.42 per share. The dividend paid is also expressed as a percentage of the face value. In the above case, the face value of Infosys was Rs.5/- and the dividend paid was Rs.42/- hence the dividend payout is said to be 840% (42/5).

It is not mandatory to pay out the dividends every year. If the company feels that instead of paying dividends to shareholders they are better off utilizing the same cash to fund new project for a better future, then can do so.

Besides, the dividends need not be paid from the profits alone. If the company has made a loss during the year but it does hold a healthy cash reserve, then the company can still pay dividends from its cash reserves.

Sometimes distributing the dividends may be the best way forward for the company. When the growth opportunities for the company have exhausted and the company holds excess cash, it would make sense for the company to reward its shareholders thereby repaying the trust the shareholders hold in the company.

The decision to pay dividend is taken in the Annual General Meeting (AGM) during which the directors of the company meet. The dividends are not paid right after the announcement. This is because the shares are traded throughout the year and it would be difficult to identify who gets the dividend and who doesn’t. The following timeline would help you understand the dividend cycle.

ch11-diagram

Dividend Declaration Date: This is the date on which the AGM takes place and the company’s board approves the dividend issue

Record Date: This is the date on which the company decides to review the shareholders register to list down all the eligible shareholders for the dividend. Usually the time difference between the dividend declaration date and record date is at least 30 days

Ex Date/Ex Dividend date: The ex dividend date is normally set two business days before the record date. Only shareholders who own the shares before the ex dividend date are entitled to the dividend. This is because in India the normal settlement is on T+2 basis. So for all practical purposes if you want to be entitled for dividend you need to ensure you buy the shares before the ex dividend date.

Dividend Payout Date: This is the day on which the dividends are paid out to shareholders listed in the register of the company.

Cum Dividend: The shares are said to be cum dividend till the ex dividend date.

When the stock goes ex dividend, usually the stock drops to the extent of dividends paid. For example if ITC (trading at Rs. 335) has declared a dividend of Rs.5. On ex date the stock price will drop to the extent of dividend paid, and as in this case the price of ITC will drop down to Rs.330. The reason for this price drop is because the amount paid out no longer belongs to the company.

Dividends can be paid anytime during the financial year. If it’s paid during the financial year it is called the interim dividend. If the dividend is paid at the end of the financial year it is called the final dividend.

bonus-issue11.3 – Bonus Issue

A bonus issue is a stock dividend, allotted by the company to reward the shareholders. The bonus shares are issued out of the reserves of the company. These are free shares that the shareholders receive against shares that they currently hold. These allotments typically come in a fixed ratio such as, 1:1, 2:1, 3:1 etc.

If the ratio is 2:1 ratio, the existing shareholders get 2 additional shares for every 1 share they hold at no additional cost. So if a shareholder owns 100 shares then he will be issued an additional 200 shares, so his total holding will become 300 shares. When the bonus shares are issued, the number of shares the shareholder holds will increase but the overall value of investment will remain the same.

To illustrate this, let us assume a bonus issue on different ratios – 1:1, 3:1 and 5:1

Bonus Issue No of shares held before bonus Share price before Bonus issue Value of Investment Number of shares held after Bonus Share price after Bonus issue Value of Investment
1:1 100 75 7,500 200 37.5 7500
3:1 30 550 16,500 120 137.5 16,500
5:1 2000 15 30,000 12,000 2.5 30,000

Similar to the dividend issue there is a bonus announcement date, ex bonus date, and record date.

Companies issue bonus shares to encourage retail participation, especially when the price per share of a company is very high and it becomes tough for new investors to buy shares. By issuing bonus shares, the number of outstanding shares increases, but the value of each share reduces as shown in the example above.

stocksplit11.4 – Stock Split

The word stock split- for the first time sounds weird but this happens on a regular basis in the markets. What this means is quite obvious – the stocks that you hold actually are split!

When a stock split is declared by the company the number of shares held increases but the investment value/market capitalization remains the same similar to bonus issue. The stock is split with reference to the face value. Suppose the stock’s face value is Rs.10, and there is a 1:1 stock split then the face value will change to Rs.5. If you owned 1 share before split you would now own 2 shares after the split.

We will illustrate this with an example:

Split Ratio Old FV No of shares you own before split Share Price before split Investment Value before split New FV No of shares you own after split Share Price after the split Investment value after split
1:1 10 100 900 90,000 5 200 450 90,000
1:5 10 100 900 90,000 2 500 180 90,000

Similar to bonus issue, stock split is usually to encourage more retail participation by reducing the value per share.

rightissue111.5 – Rights Issue

The idea behind a rights issue is to raise fresh capital. However instead of going public, the company approaches their existing shareholders Think about the rights issue as a second IPO but for a select group of people (existing shareholders). The rights issue could be an indication of a promising new development in the company. The shareholders can subscribe to the rights issue in the proportion of their share holding. For example 1:4 rights issue means for every 4 shares a shareholder owns, he can subscribe to 1 additional share. Needless to say the new shares under the rights issue will be issued at a lower price than what prevails in the markets.

However, a word of caution – The investor should not be swayed by the discount offered by the company but they should look beyond that. Rights issue is different from bonus issue as one is paying money to acquire shares. Hence the shareholder should subscribe only if he or she is completely convinced about the future of the company. Also, if the market price is below the subscription price/right issue price it is obviously cheaper to buy it from the open market.

buyback11.6 – Buyback of shares

A buyback can be seen as a method for company to invest in itself by buying shares from other investors in the market. Buybacks reduce the number of shares outstanding in the market, however buyback of shares is an important method of corporate restructuring. There could be many reasons why corporate choose to buy back shares..

  1. Improve the profitability on a per share basis
  2. To consolidate their stake in the company
  3. To prevent other companies from taking over
  4. To show the confidence of the promoters about their company
  5. To support the share price from declining in the markets

When a company announces a buy back, it signals the company’s confidence about itself. Hence this is usually a positive for the share price.


Key takeaways from this chapter

  1. Corporate actions has an impact on stock prices
  2. Dividends are means of rewarding the shareholders. Dividend is announced as a percentage of face value
  3. If you aspire to get the dividend you need to own the stock before the ex dividend date
  4. A bonus issue is a form of stock dividend. This is the company’s way of rewarding the shareholders with additional shares
  5. A stock spilt is done based on the face value. The face value and the stock price changes in proportion to the change in face value
  6. Rights issue is way through which the company raises fresh capital from the existing shareholders. Subscribe to it only if you think it makes sense
  7. Buy back signals a positive outlook of the promoters. This also conveys to the shareholders that the promoters are optimistic of the company’s prospects.

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352 comments

  1. DA2301 says:

    First of all many thanks for sharing knowledge in a format which everyone can understand.
    I have a doubt on your below impact on stock price due to dividend payment –
    “When the stock goes ex dividend, usually the stock drops to the extent of dividends paid. For example if ITC (trading at Rs. 335) has declared a dividend of Rs.5. On ex date the stock price will drop to the extent of dividend paid, and as in this case the price of ITC will drop down to Rs.330. The reason for this price drop is because the amount paid out no longer belongs to the company.”
    If this is so easy then will it not create a shorting opportunity just before the ex-dividend date if the dividend amount is significant?

    • Karthik Rangappa says:

      Thanks for your kind words.

      With respect to shorting just before ex-dividend..its not so easy. Think about it, everybody attempts to do the same 🙂

      • Anant says:

        Not clear. Please elaborate.

        • Karthik Rangappa says:

          When dividends are expected, the stock tends to dip to the extent of the dividend paid. This is a known fact and there is no edge shorting based on this expectation.

          • Prateek says:

            This is not the correct explanation Karthik. When you are shorting a cum-dividend stock and squaring off when the stock goes ex-dividend, you need to square off with the ex-dividend stock plus the dividend amount. Since you have to pay the dividend amount as well to square off, there is no gain.

            To sell short you first must set up a margin account with your broker. A margin account allows you borrow from your brokerage company using the value of your portfolio as collateral. The general rule is that the value of your portfolio must equal at least 50% of the size of the short sale transaction. In other words, If you have Rs. 100,000 worth of stock/cash in your margin account, you can borrow Rs. 200,000 of stock to sell short.

          • Karthik Rangappa says:

            Prateek – are you talking about shorting in the spot or Futures market?

      • Rakesh Kumar says:

        How to keep a track or get to know about these dates in specific?

    • teena patidar says:

      If someone bought shares of BEL yesterday (27th SEPT). will the shares be delivered with price adjusted for ex bonus. I mean deliveries for BEL yesterday were at 60% so all those who bought were already aware that tomorrow price will go down 10%.. so why they’d take such a risk ?
      I’m thinking that during delivery of these shares the price should be adjusted to ex bonus.. or is it not ?

      Thanks in advance for the info.
      Cheers!

  2. How can we call the Bonus Issue as a reward to shareholders when the value of investment is not increasing?

    Thanks

    • Karthik Rangappa says:

      With the Bonus issue the number of shares increases, this means when dividends are issued you earn more money 🙂

      • Ankit Jain says:

        Does the Face Value remain the same on bonus issue?

        • Karthik Rangappa says:

          Yes, it does.

          • Srihari says:

            Karthik. first of all thanks for the info sharing. Really fantastic initiative.
            My question to your response for
            So, what is the difference between Bonus issue and Stock Split? seems to be a very thin line.
            1) The value of investment is not increasing in both cases.
            2) The # of shares remains the same

            So the difference is the change value remains same in Bonus issue and reduces in Stock split?

          • Karthik Rangappa says:

            Bonus issue – you get additional shares against what you already hold. This is also considered as a dividend in the form of new shares issued. The split is dividing the shares. Both cases number of shares increases, value remains the same.

  3. Vinay says:

    Hi,
    Thanks for the great initiative by scheiss-leben.
    Its really helpful.
    I have a doubt on these topics- bonus issue and stock split.
    In both the cases the number of shares we are holding increases but the value remains the same?
    Except the face value decreases by stock splits.
    Are there any other differences between bonus issue and stock split.
    Please explain.

    Thanks.

    • Karthik Rangappa says:

      Yes, the investment value remains the same. In stock split, the Face value reduces and in Bonus issue it does not. In both the cases. This helps in realizing a higher dividend value.

      • Raghavendra says:

        How does Stock Split and Bonus shares help us realize more dividend value.
        According to my understanding,
        Consider before Stock Split FV of a XYZ share is 10. Dividend announced would be 1000% ie Rs 100 per share. After Stock Split FV would be 5 and 2X shares. Dividend announced would be 1000% ie 5*2*10 = 100 for 2 shares. Dividend would not increase right.

        In case of Bonus since FV does not decrease the Dividend realization increases right?.

        • Karthik Rangappa says:

          That right. Maybe I need to rewrite this bit. But there is another angle here – capital appreciation, especially for companies with strong capital structure and business model. For example Relaxo Footware was trading around 800 in early 2014..the stock split and the value dropped to 175. The number of shares increased and the stock continued to rally…its back to 800 now, so in the whole process massive wealth has been created. This is one of the advantages of stock split.

        • VRN says:

          Hi,
          Here I am not able to understand 5*2*10. What is 10 in this case ?

  4. Raju Shinde says:

    “Only shareholders who own the shares before the ex dividend date are entitled to the dividend.”
    If I bought the shares 4 days before the AGM and sell on AGM day, still I am entitled to get the dividend?

  5. SIva says:

    How a 5:1 bonus will be issued, if a investor has 4 shares or 21 shares. Do the investor lose benefit for some shares in this case? If so, will that money be moved to share capital from surplus or not?.

    • Karthik Rangappa says:

      A 5:1 bonus indicates 5 additional shares are being issued for every 1 shares. If the investor has 4 shares (before issue), he would get 20 additional shares, likewise if you held 21 shares.

  6. SIva says:

    Sorry I didn’t mean that, I should have put that as 1:5. Will a share holder get bonus if he holds 4 shares when the company declares 1 bonus for every 5 shares? If not, is there any money compensation for that 4 holding shares?

    • Karthik Rangappa says:

      Well in that case it is quite evident – for every 5 shares you get 1 free. Clearly you wont be entitled to receive this if you have 4 shares. However, sometimes you do get a proportional ‘fractional allotment’ which can be sold back to the company for cash.

  7. saxena.000 says:

    Hi Karthik..
    The example of stock split seems to be wrong, as the face value has become 2 from 10 that is one fifth, then the no of shares will be multiplied by 5 and rate will be divided by 5 . That implies if I was holding 100 shares of Rs 900 at face value 10 and new FV is 2 than my no of shares will become 500 and new rate will be 180 and my investment will remain the same.

  8. Nathan says:

    Sir, I have some questions. If face value of a share comes to Rs. 1 after share split. So after this stage what that company will do for further liquidity increase. What kind of benefit we can get from them as a share holder by buying the shares at face value 1rs. for example TCS share is trading now at 2642.00 rs. Face value is 1rs. . What will they do to increase the liquidity after this? Is it safe to buy a share having face value 1 ? what steps they will take to increase more investors? Please answer this also. For long time investment which is safe ? a share having face value 10 or face value 1, apart from other factors.

    • Karthik Rangappa says:

      Nathan..liquidity is not really a function of the face value of a stock. Liquidity purely depends on the demand supply dynamics. Even when the FV reaches 1/-, the company can boost its liquidity by issuing bonus shares. Yes, it is absolutely safe to invest in shares with FV of 1. It really should not matter as long the company is good (like TCS).

  9. vishvendra89 says:

    Hi, my query is, in case of stock split example, a ratio of 1:5 indicates that every stock splits into 5, for 100 shares you get 500, by following same logic, for a stock to split into 2, shouldn’t ratio be 1:2 vs as you have mentioned 1:1. thanks

    • Karthik Rangappa says:

      1:1 indicates that for every 1 share you have, you are entitled for an additional share. Hence if you owned 10 shares before split, you’d now own 20 shares after split. Likewise in a 1:2 split, if the split is 1:2 then for every 1 share you own, you are entitled for additional 2 shares. Hence if you owned 10 shares you will get 20 additional shares taking your total ownership to 30 shares.

      • Ashish Arora says:

        Mr. Karthik, As per your explanation on query of Mr VISHVENDRA89, we will receive 30 shares in case of 1:2 ratio stock split.
        In that case figures mentioned in example of stock split 1:5 is wrong. New number of shares owned should be 600 and New face value should be 1.67.
        Please check once again and confirm.

        • Karthik Rangappa says:

          FV cannot be fractional, it has to be a whole number. Will look through the number again and get back on this.

    • Amit says:

      Hi, What you are saying is correct. There is nothing like 1:1 stock split. It should be 1:2. Typo error 🙂

  10. Arbaz_Jigri says:

    Awesome stuff this is! Thanks so much for providing us this platform. Quick question Sir, what do you think about the recent RBI monetary policy?

  11. krishnasai says:

    Hi Karthik,

    Based on your explanation to VISHVENDRA89, when shares were split in 1:5 ratio…number of shares after split should be 600 and price should be 150..isnt it so? one more doubt is when will company decide to go for Bonus shares and when for stock split….i know there will not be hard and fast rules but on what basis….thanks for your prompt replies to all of questions over here….

    • Karthik Rangappa says:

      Yes, the number of shares will be 600 (100 + 500) and the price will be reduced by 1/5th. One of the common reasons for a bonus issue – swelling Reserves of the company. When the reserves starts increasing and the company accumulates a lot of cash they usually opt for a bonus issue. I guess the same thing happened with Infosys recently.

      Splits are usually done to increase the liquidity of the stock. When stock price increases in optical value (like Eicher, MRF etc) it would be hard for retail participants to trade these shares. Hence companies opt for splits – to make it easier for retail traders, and thereby increase the liquidity.

  12. kay kay says:

    Hi sir,
    where do we find street expectation data of a company before announcement?
    and how do we know the result exceed expectation or not on announcement day

    thank u sir

  13. Manoj says:

    1)should the stock be in my demat before ex-date or am i entitled to dividend if i purchase the share 1 day before ex date??
    2)Am i entitled to a dividend if i sell it after exdate and before record date

  14. says:

    Hi Karthik,
    I want to know suppose i have bought Nifty Options using a limit order or market order and later-on can i place a pending stop loss limit or market order?

  15. shinde N D says:

    Important note read every one thank

  16. shinde N D says:

    Important note read every one thank s……

  17. krushna says:

    SIr, as paying dividend is optional for a company, what other benefits does shareholder gets if he do not intend to sell his share ( assuming company does not declare any dividend in a particular year)?

  18. nihaal says:

    i guess share price doesn’t change after bonus issue as the additional capital is from reserves of the company?

    • Karthik Rangappa says:

      It does nihaal. Assume you hold 100 shares at Rs.50. Your investment here is Rs.5000/-. Now assuming the company issue 1:1 bonus you will now hold 200 shares. If the share price does not change then you will have 200 * 50 = Rs.10,000/- which cant happen. So the share price has to proportionately come down. So you will have 200 * 25 = Rs.5000/- .

  19. tarun says:

    if record date of bonus share issue and i sell share before record date i will get bonus share or not

    • Karthik Rangappa says:

      Nope you will not get. You need to be a shareholder on record day for you to be eligible for bonus shares.

  20. tarun says:

    Thanks Karthik

  21. tarun says:

    Dear Karthik
    if share price less than FV what should be do mean we should buy stock or not?

    • Karthik Rangappa says:

      Stock can go below the FV – usually happens when the sentiment in the stock goes very low. If its a good stock but a temporary negative sentiment then you can buy the stock with a hope it will bounce back…otherwise you should avoid. However you also need to develop a sense to identify good business..you will need Fundamental Analysis for this .

  22. Ganesh says:

    A Question
    Following your example if a stock with a market value of 100 announces bonus in the ration of 1:1, its share price should become half, i.e., 50.
    But when I checked the graphs of a few stocks on moneycontrol I found out that this is not happening.
    Infosys declared bonus(in the ratio of 1:1) on 2 Dec 2014 and its price on 3 Dec fell just by a mere 5 points instead of halving!!!!
    Also Wipro declared dividend(of 250%) on 22 Jan but instead of falling its prices actually rose the next day(and not just the next day, they rose for the next few days for that matter and reached its 52 week High!).
    I don’t seem to get it. Do these things happen only in theory or am I missing something?

    • Karthik Rangappa says:

      Ganesh – There are two things you need to evaluate when looking at bonus issues. (1) The date they make the announcement (2) The record date. The announcement date is the day the company comes out in the open and suggests that it will pay a bonus. While the record date is the actual day of implementation. The stock price will go down by the required amount on the record date and not really the announcement day. So next time a company makes a bonus announcement, do make sure you check the record date as well.

      The dividends announcement is usually made on the face value of the company (FV). So in Wipro’s case 250% dividend on its FV of Rs.2 is just Rs.5/-…so that does not really impact the stock much. Hence the stock will move in accordance to the general market sentiment..which in case of Wipro seems to be bullish. Hence the stock continued to rally.

      • Ganesh says:

        Ok Now I get it. Thanks for the clarification, but after rechecking I found out that the stock price of Infosys did fall before the declaration date but still it fell from 2180 to 1920(approx values). This was a mere fall of 210 points. In theory, it should actually become half(1040 in this case). So can a bullish market sentiment be so strong that it can convert a 1040 points (theoretical) reduction in the MV to a mere 260 points reduction in the market value? Or is it that I am missing something again?

        • Karthik Rangappa says:

          A bullish market sentiment can help the stock bounce back immediately from the split value. For example if the stock price is supposed to be 1040, then a bullish market can help the stock bounce back from 1040 to whatever value. Nevertheless the low of 1040 will be seen on the charts.

  23. Joseph Rodrigues says:

    Dear Sir,

    How does a merger of two or more stocks impact Holdings and Investment cost under ‘All Stock’, ‘All Cash’ and ‘Stock and Cash combined’?

    How does an acquisition of a stock impact Holdings and Investment cost of original as well as acquired stock.

    Thank you Sir.

  24. Sumeet says:

    In one of the comments ypu mentioned the following..
    1. Benefits of M&A – as a result of which you may end up getting shares of other companies
    2. Bonus Debentures – As in the current case of NTPC

    Can you elaborate on these topics as i could not understand..
    Thanks..

  25. prasad sarwate says:

    sir,it would be glad if you introduce a module on all the terms in the company’s balance sheet and how to perceive them just to gauge an idea abt how good a company’s position is which goes a long way in determining whether to buy a stock or not.asking a tad too much but wud be very much helpful and we r not left stranded at the mercy of pseudo stock gurus!!!

  26. prasad sarwate says:

    sir,what’s the job of the face value of a share.what does it actually indicate given the fact the share price is different.is it that it’s only importance is during the stock splits or the face value determines the quality of a stock.pls explain why to have a face value in the first place and how is it determined????

  27. prasad sarwate says:

    sir,how does a debenture gets traded on the stock market.i mean,what to make out of a certain japanese bonds loosing its sheen on the wake of the greek crisis.if it’s a debt instrument shouldn’t it mean that i issue a bond of 10rs. say for 10yrs.so i get 10 rs from u now and after 10yrs i owe u 12 rs.isn’t this the way how the debt market works jus like in paying interest and settling the debt.how do the bond prices fluctuate then.what happens to the bondholders in such a scenario and wouldn’t it be just as risky as equities????so sorry to disturb u but i cant seem to get it

    • Karthik Rangappa says:

      Bond prices are influenced by the prevailing interest rate in the economy. They are invesly proportions…so rate go up, price comes down and vice versa. So yes, bonds are also risky..but much less risky than Equities.

  28. prasad sarwate says:

    yes,i can get the inverse relationships sir,wrt the bond prices and interest rates but then assuming,i was aboout to get 150rs on maturity of a 100rs.bond after 10yrs.now,in the 10th year,for some reason the bond price goes down;will i get the same 150 rs as promised to me(that’s wat the bond means) or will i get according to the prevailing market conditions.pls explain this sir and thanks a ton for ur earlier replies.also tell me can bonds be bought from the same trading a/c????

  29. prasad sarwate says:

    so sorry to disturb you,sir but you haven’t answered my above question.waiting eagerly for your answer

    • Karthik Rangappa says:

      Sorry I seem to have missed your question, thanks for the reminder. Yes, you are supposed to get Rs.150 upon maturity….unless the issuer defaults. Defaulting on a bond payment is a major issue and will have a severe -ve repercussions…so most companies attempt not to default on their bond payments. I suppose you can hold few bonds (listed on exchanges) in DEMAT form.

  30. prasad sarwate says:

    thanks sir!!!!!!!!

  31. Ravikanth says:

    Thanks for this initiative!
    One doubt I have is, are the bonus shares taken from unreserved pool.
    Going to the example in the earlier chapters, say 50% of shares are held by Promoter, VC’s, PE’s and 30% is owned by public.
    So these bonus shares come out of the remaining 20%?

  32. Ajinjay says:

    Hi,

    In rights issue how early can I sell my existing shares and be still be able to qualify for rights issue.Is it ex-rights date or record date. In other words if I sell my shares on record date will I still qualify for rights issue (b’coz settlement happens at T+2)?

    Thanks

    • Karthik Rangappa says:

      You need to be a shareholder on Ex day in order to be eligible for any corporate action. For all practical purposes it is advisable to hold the shares till record date.

  33. sudeshnabora says:

    What is the difference between FV (face value) of a share and share price (please refer the table in stock split)?

  34. Aditya says:

    How did the investor get profit if in the example ITC trading at Rs. 335 declares dividend of Rs. 5 in AGM and next day price go down to Rs. 330 and on dividend payout date he got dividend. Value of the investment will remain same.

    • Karthik Rangappa says:

      Not sure where I have mentioned ‘profit’…but anyway, dividend is tax free…so in a sense its advantageous for the investor to have a tax free income.

  35. Joseph says:

    Dear Sir,

    Suppose a company declares bonus and dividend. Ex-date for the bonus and dividend is on the same day, will investors receive dividend on shares held as on exdate-1day as well as bonus shares?
    Example: Comapny ABC declares bonus 1:1 and dividend 20%. Suppose an Investor holds 1000 shares in ABC on exdate-1day, how much dividend will the investor receive?
    1000*10%= 100
    OR
    2000*10%= 200 (Including bonus)

    Regards,
    Joseph

  36. Milan says:

    Hello sir,
    thanks for this excellent article.
    my doubt is based on split. suppose face value is rs. 1
    and i have 10 shares of ABC Company.
    Company announced split shares 1:1. then i will get 20 shares.
    so now face value will be 0.5 ?
    on every split year after year, …. at what lower price face value can go ?
    it may touch 0.05 ?
    is there any rules for Face Value ?

  37. Surdev says:

    Sir I cannot understand why the price of the stock should compulsorily go down when the company announces a dividend. Please elaborate . T

    • Karthik Rangappa says:

      When you pay dividends (on a per share basis) cash is taken out from the company, this gets adjusted on a per share basis hence the stock price declines to the extent of the dividend paid.

  38. abhishek sah says:

    so we are in a no loss no gain situation in case we are given the dividends, because however the stock price will drop down to the equivalent amount. Or is there something that i am missing?

    • Karthik Rangappa says:

      Dividend yield is quite low…think of the dividends as the rental income you get on your apartment and the apartment itself as an investment in your stock.

      Works on similar lines.

  39. Ranjani says:

    Sir,
    What may be the date of Board Meeting for issue of Bonus Share. Also please explain Board Meeting/ AGM date, Record date, ex-bonus date, bonus issue date etc… with example.

  40. suresh says:

    Hi sir,
    how can we get instant news update of GDP and other inflation data for global and india
    is there any web links?

  41. Satheesh. A. M says:

    Systematically designed notes ! I appteciate your efforts ! Thank you !

  42. venki says:

    Hi
    Thanks for sharing info. I need some more details on buyback. What will be the record and ex-date in case of buyback of shares? Could you please elaborate

    • Karthik Rangappa says:

      I suppose you are asking this wrt to Dr.Reddy case. The record and ex dates would be as per companies buy back policy.

  43. Rajasekhar says:

    Hi, I have bought prakash steelage stock on 2nd March 2016 – stock gets splitted into 1:10 and will i get the benefit of the stock split or not.. If not it would be loss ?

    THanks,
    Raj

    • Karthik Rangappa says:

      You will get additional shares in the ratio of 1:10…the same will be credited to your DEMAT account on Ex date.

  44. SARAVANA PERUMAL D says:

    Hi Karthik,
    If the Dividend, bonus, Right, Stock split and Merge & Acquisition on the F&O segment stock. Then, What happen on the price of Future market & Option premium.

    Thanks in advance.

    • Karthik Rangappa says:

      They will react accordingly. Will probably put up a chapter in Futures module discussing the effect of corporate actions on Derivative instruments.

  45. SARAVANA PERUMAL D says:

    Hi Karthik,
    One more doubt for me. The dividend query available on tradingqna forum stated that for Ex-dividend date & Record Date as below shown:
    Ex-Date or Ex-Dividend Date: As the name suggests, Ex-Dividend date is the date on which the stock trades without the dividend included in it. Normally the price of the stock will drop to the extent of the dividend declared on the ex-dividend date. You will have to ensure that you buy the stock before the Ex-Dividend date to be eligible for the dividends. Important: You will NOT get the dividend in case you are buying the stock ON the ex-dividend date.
    Record Date: Normally there’s a certain amount of time involved between when the shareholder’s buy stock and when their names are registered in the company’s records. Dividends are paid to shareholder’s whose names appear in the company’s records as on the Record date.
    Record date is normally 3-4 days after the ex-dividend date. If you buy the stock by Ex-Date, you can expect your name to be in the Company’s record by the Record Date.

    Query:
    The above both of the statements are confuse to me.

    One is “You will NOT get the dividend in case you are buying the stock ON the ex-dividend date.” in ex-dividend date.
    And another one is “If you buy the stock by Ex-Date, you can expect your name to be in the Company’s record by the Record Date”.
    My doubt is, if I buy the stock on ex-dividend date. Am I eligible for dividend or not?
    Then, why the record date is come on this term? And some company not defines the record date? Why?

    I see the money control link some not shown the record date: http://moneycontrol.com/stocks/marketinfo/dividends_declared/

    Thanks in advance

    • Karthik Rangappa says:

      Settlement happens on a T+2 basis, so even if you buy on Ex dividend date, your name will not reflect in Record date.

  46. Lakshmi says:

    Sir since the no of shares increases in both bonus and stock split, doesn’t the intrinsic value of the company decrease ? Should we consider this while calculating the IV ?

    • Karthik Rangappa says:

      If you are referring to intrinsic value in terms of fundamental valuation, then it wont change.

      • Lakshmi says:

        But in the calculation of the IV in DCF method we use the no of shares . Since the no of shares is increasing shouldn’t the IV too decrease ?

        • Karthik Rangappa says:

          Well, the number of shares is multiplied by share price, so the valuation remains the same. Also, thing about this – if by means of corporate actions the company’s valuation decreases, then why would corporate even do it 🙂

  47. Sainudheen says:

    Sir,
    Have a doubt on Bonus shares, suppose i have a 100 shares of ITC @320, company issued a bonus 1:1 after my shares number would be 200 shares @320 rs or 200 shares @160 rs.
    My doubt is why share price will decrease after bonus issue,
    Thanks

    • Karthik Rangappa says:

      Yes, share price will decrease and number of shares increase. But your investment amount will be the same. In your example it would be 200 shares @ 160.

  48. says:

    Hi Nithin
    My name is D.Omprakash. ID:DO0042. I have some query on record date. eg: ITC announces record date on 06/15/2016 and bonus shares 2:1 If i purchase itc shares on 30/05/2016 then bonus shares will get credited to my account?

  49. says:

    IF A COMPANY ANNOUNCED BONUS SHARES SAY 1:2 AND SHARE PRICE IS 380 THEN AFTER GETTING BONUS SHARES THEN PRICE OF THE SHARE CONVERTED TO 180 OR LESSSER THAN THAT OR REMAINS THE SAME PRICE 380 WITH 1 BONUS SHARES

  50. Sainudheen says:

    Sir,
    After Bonus issue of any particular company suppose 1:1 ITC 100 shares @320, Our share would double (100 become 200 )and price become half(160) right.
    But that time market value would be 330, so what ever bonus we are getting can we sell with profit,
    I mean in this Example can i sell it in [email protected]

  51. Sai Sreedhar says:

    Is there any special advantage buying a company stock after they have announced Split/Bonus?
    I see a lot of buying in recent days after companies have announced Bonus/Split.

  52. Vishal Saini says:

    Could you explain how bonus issue and stock split are beneficial for both parties company as well as shareholders???
    Thanks for putting all this information so nicely…:)

    • Karthik Rangappa says:

      With bonus issue, the number of shares increase, the price of the share decreases…this would lead to higher liquidity. Higher liquidity means more trading, reduced volatility. Reduced volatility means less pain to investors. These are advantages for both the company and shareholders.

  53. ASHISH SODHI says:

    Hi, is the record date always after the dividend declaration date?

  54. Dr Prasanthibu says:

    In case of Bharti Infratel the Record date is mentioned as 16 June 2016. In this case if I buy shares of Bharti Infratel on 14th June 16 will I be eligible for the buy back. Will my shares that I have bought reach my Demat account by the Record date?

  55. MOnal Jain says:

    Sir, I want to know. I have bought shares today of Infratel so that on record date my name is on Shareholder list.Now, before buyback actually starts Can i sell those holdings ( for a profit offcourse) and can buy again so as to tender Shares ??

    In this way, I am eligible to participate in tender offer and also has shares to tender.

    Please Clarity

    • Karthik Rangappa says:

      No, I would suggest you don’t do this as the record date is just 1 day away!

      • Monal Jain says:

        karthik,
        No, you are not getting it. I will be selling those holdings say after 5-10 days and will buy again after that before actually buyback starts.

        Please clarify

        • Karthik Rangappa says:

          Ok, I guess you can do this.

          • Monal Jain says:

            Thanks Karthik.

            How does Buyback Process will work at scheiss-leben. Manual or Online ? Many Brokers have special window open for buyback surrender.

            Can you elaborate, how The process will be if i need to surrender shares for buyback from my scheiss-leben account

          • Karthik Rangappa says:

            You can send an email to [email protected] indicating your desire to take part in the Buy back. You’ll have to attach the scanned copy of the tender form and mention how many shares you wish to tender for the buyback.

  56. Jitendra boinwar says:

    Hi sir,
    Can you please how varios factors affect on share price. I mean if company declair bonus shares price of the shares increasing like wise some other actions who can increase or decrease price of the shares.

  57. Prasanthi says:

    Bharti Infratel has sent me the Buy back offer’s Tender form. In that form they have mentioned that we have to tender the stocks through my respective sharefholder broker i.e. scheiss-leben by indicating the detils of Equity shares I intend to tender under the Buy-back offer.
    Would you please let me know how can I do that? I am unable to find the option to offer my shares for buy back online any where in scheiss-leben website. Please help.

  58. subhro acharya says:

    Suppose i have 105 equity shares of a company x and the company issue bonus share in the ratio 1:2. Then how many additional share will I get? ? If the answer is 52 then is it a loss for me? ?

    • Karthik Rangappa says:

      No, the fractional shares will be converted to cash and the cash will be credited to your bank account.

  59. Raga says:

    I am a bit confused understanding bonus and split shares:
    Lets say ABC company has a market capital of Rs.1 Lakh and FV Rs.10. The company decided to issue bonus shares and transferred Rs.1 lakh from its reserves and issued bonus shares.
    If a shareholder has 1 share, after bonus issue he is getting 2 shares with FV Rs.10 and at the same time the market price is normalized in the same manner i.e., market price will get dropped by half. So what is the benefit the shareholder gets? Even a split does that!
    Please clarify.

    • Karthik Rangappa says:

      Well, there is no material benefit as such 🙂 But in the long run, if the company continues to perform well and the profits swell, you can expect a higher dividend yield.

  60. Shivanand says:

    Usually after rights issue announcement whether the share price decrease or increase? Take the case of Karnataka bank, rights announced in the ratio 1 for every 2 shares held @ Rs 70 per share(10 Fv +60 premium). Market price (share price) decreased by Rs 7 to Rs 143 from RS 149.75 around 4.7%, that to bullish market day where nifty peaked to 52 week high and nifty bank jumped by around 2%. What this indicates?

    • Karthik Rangappa says:

      It is usual to expect the stock price to fall after Right issue…this is because there are more number of shares for the given set of earnings. Even the dividend and PE kind of declines. You got to be absolutely sure before subscribing for a rights issue…do it only if you are sure about the growth prospects of the company.

  61. Pooja says:

    Why does stock decline between dividend declaration and exdate? In your example of ITC, if ITC declared a dividend of Rs. 5, then ITC dropped down from 335 to 330. I did not understand the reason given.

    The seller now knows that the buyer will get Rs 5 income after buying the shares. Hence, won’t the seller ask for an additional share price of, say, Rs 4? So, it would actually go up to 339 – why does it drop?
    In your reason that the money does not belong to company – I did not understand what it means – why/where is the company in this trade? What I am missing here?

    Thanks for the time and effort you are putting here.

    • Karthik Rangappa says:

      Dividend is a cash income which is distributed from the profits made by the company. Will shortly put up a detailed note on how this (and bonus, splits, and rights ) affect the stock price.

  62. mahavishnu says:

    REC CMP230.. 28-09-2016 bonus 1:1
    today bought option contract 180pe sep @0.05
    28-9-2016 rec cmp range 125-120.. my option contract LTP will increase or not.. option contract
    what will be react ..

  63. Ashok Goyal says:

    On July 1st 2016 ITC issued 2:1 bonus but the stock price did not change proportionately. The reason for this it?

  64. Leontia Whyte says:

    Thanks for a detail understanding of how the CA effects the stock price. There were many confusions before i read your chapter, now i am confident on how this works and effects the stocks 🙂

  65. deepender says:

    first of alll great efforts karthik sir you have done marvelous job

    after reading your page, i came to know how stock price affected by corporate actions, sir my question is to you that as i am studying a company (ALANKIT LTD) which recently has announced sub devision of shares (stock split ) on 26-aug-16, and last time they had announced stock split on 13.7.15 but when i saw company price graph i saw no price down fall after split please clear my doubt i have high hope from you and please tell me also what will happen if company declare bonus share and the date when price will effect ..

    and thanks for making such awesome page on stock marketing knowledge

    • Karthik Rangappa says:

      Thanks Deepender.

      Most likely the price you are seeing in the chart is adjusted for splits and bonuses.

      • sonthu says:

        Hi Karthik,
        Firstly thanks for all the brilliant consolidated beautiful explanations you have given for the corporate actions. This thread have provided the information’s i have been searching since some months. Kudos to you and your team.
        Well my question is about the answer you have given to deepender above
        1) How do they adjust the splits in the chart?. They will do for the historical prices ?. Like consider the price of a XYZ stock is 900 and the company have announced 1 :3 split . so the current price on record date will be 300(900/3) right?. so will they change the historical prices by the same ratio?
        2) How is the notion for bonus and share split described?. Is it (2:1 or 1:2 ) for 2 share bonus for the existing single share?
        3) Also, in the split ratio 1:1 how is the share price gets affected of a stock?

        • Karthik Rangappa says:

          I’m glad you liked the contents here Sonthu.

          1) Yes, the prices will be adjusted historically to reflect the recent corporate action to make the charts look consistent

          2) 2:1

          3) Share price will be divided by 2 and the number of shares will increase by 2

          • sonthu says:

            thanks karthik for the reply.
            In reference to the third answer, the split ratio of 1:1 and 1:2 is the same right? because in both the shares will be split into two shares and the share prices divided by 2.
            please let me know if i am incorrect

          • Karthik Rangappa says:

            1:2 is the right way to express. And yes, shares are divided by 2.

  66. khushbu dubey says:

    I am not convinced with the split ratio ez of 1:1 .
    split 1:1, should mean no split at all. It should be always like, 1:2; 1:3; 1:4 ; 1:n, where n is any positive integer.

    Pls. correct me if i am wrong.

    • Karthik Rangappa says:

      1:2 indicates I get 1 share for every 2 shares that I own…but what if the company decides to give 1 share for every 1 share that I own?

      • khushbu dubey says:

        Can you pls. justify based on the explanation in this chapter above :

        Split Ratio Old FV No of shares you own before split Share Price before split Investment Value before split New FV No of shares you own after split Share Price after the split Investment value after split
        1:1 10 100 900 90,000 5 200 450 90,000
        1:5 10 100 900 90,000 2 500 180 90,000

        Thnks!
        khushbu

  67. Arun326 says:

    Can you explain demisting, what happens when a company wants to delist, how it affects stock price? .. Thanks

  68. Roy says:

    I received a message from NSE a few days ago that bonus shares for Wim Plast have been credited to my demat account but the same does not reflect on my scheiss-leben account (under holdings). Kindly let me know when these shares will reflect in my holdings.

  69. prashanth says:

    sir today i sold 10 of my 20 IOC shares…(i bought these 20 shares on august 10th)
    on sep 02(ex-date) company announced dividend Rs 8.50 per share
    still i have 10 shares of IOC.

    am i eligible for dividend now ?

    if i am eligible for dividend will i get dividend per 20 shares OR 10 shares?

  70. Vaibhav Joshi says:

    Hi Karthik,

    Please consider below example

    Declaration Date-Friday, 7/26/2013
    Ex-Dividend Date-Thursday, 8/8/2013
    Record Date-Monday, 8/12/2013
    Payable Date -Tuesday, 9/10/2013

    If one has to target dividends then please suggest what is the minimum holding duration as per above example.

    • Karthik Rangappa says:

      You have to make sure you are a shareholder before the record date. In order to do that you need to buy the share at least 2 days before the record date since the settlement is T+2 basis. So in this case by 8/10/2013.

      • Vaibhav Joshi says:

        Thank You Sir!
        if I bought share before record date and sold after record date but before payable date, Then in that case I will be eligible for dividend?
        Considering above example bought on 8/8/2013 and sold on 8/20/2013 then does dividend will receive to me?

  71. Prashanth says:

    How to buy rights…?
    What is the process?
    How to apply?

  72. Chandramohan says:

    Thanks for the detailed information. Can you please provide the formula to adjust the stock price in case of rights issue. For example recently Karnataka Banks stock price got adjusted to 130 from 158 after the rights issue. Please let me know how to arrive at this price.

  73. venkatesh says:

    Whether dividend amount is paid to scheiss-leben account or bank account

  74. Dipankar Vedant says:

    Hi, I have a confusion. Please look the below scenario.
    Company:OIL
    Announcement date: 28 Nov 2016
    Ex bonus date: 12 Jan 2017
    Record date: 13 Jan 2017
    I bought shares on 11 Jan 2017 which is before ex date. But the shares won’t be on my account on record date considering T+2 period.
    What will happen in this scenario? Kindly clarify
    Thanks.

  75. venkatesh says:

    Ex bonus date: 19 Jan 2017
    Record date: 20 Jan 2017
    IF i buy shares on 17 Jan 2017, will i get the dividend, please answer yes or no, and clarify.

  76. venkatesh says:

    Ex dividend date: 19 Jan 2017
    Record date: 20 Jan 2017
    I have bought x company shares one week back and if i sell on ex dividend date will I be able to get the dividend?

  77. venkatesh says:

    Ex dividend date: 19 Jan 2017
    Record date: 20 Jan 2017
    IF i sell on Record Date will I be able to get the dividend?

  78. Rajiv says:

    Hi Sir, thanks for the article. my query is: Is BLOCK deals good or bad for a stock price? Thank you.

  79. Sparsh Gupta says:

    For dividend, TCS has record date of 24/1/2017, so how much time it takes for money to credit in account after record date ? And dividend money comes to bank account or scheiss-leben account ?

  80. Rahul says:

    Hello Sir,
    If my capital is 20,000/-, i purchased 100 shares of xyz company @ 200/- per share on 20/12/2016 & company declare bonus share of 1:2 record date is 28/1/2017 & after record date i will get extra 50 shares of xyz company, so now i am having total 150 shares of xyz company in my demat account. Suppose the market price is 220/- per share on 2/2/2017 Now if i sell all 150 share on 2/2/2017, How it calculated?
    Is it 150 shares *220/- market price = 33,000/- ?

    Please Reply

    • Karthik Rangappa says:

      No, with a 1:2 bonus, you get 1 share for every 2 shares….therefore additional 50 shares, making a total of 150. But at the same time, share price also declines to about 133.

      So you will still have 150*133 = 20000 worth of investments.

      • RAHUL says:

        Sir, But i have seen that within 5 days like group ‘A’ stocks the price does not fall from 200/- to 133/- it will decline upto 185 (roughly). So now if i sell 150 shares @ 185/- then my capital will become 150*185=27,750/-?? Sir, ur doing great job!!

  81. Siva hemanth says:

    if the sock split is 1:1 the face value will be changed from 10 to 10/(1+1)=5. But if the stock split is 1:5 the face value should change from 10 to 10/(1+5)=10/6. But u have mentioned 2. Can u please explain?

    • Karthik Rangappa says:

      Both 1:1 and 1:2 are similar….I dont know why I mentioned 1:1 in stock splits (it is usually works for bonuses, will correct this as well). Anyway, in 1:2, FV is split from 10 to 5 (10/2)…and in 1:5, FV is split from 10 to 2 (10/5).

  82. kmayank says:

    I am very beginner. All i have learnt is from your tutorials provided here. I want to practice it virtually before i land in real trading market. I mean i want to play where all are real except money which will be virtual. I have this question that if you have this feature.

  83. Siva Prasad says:

    I have doubt that..
    what will be the immediate next day impact on share market
    1. Bonus
    2. Split
    3.dividend
    4.Buy back

    I mean share value increase or decrease?

    • Karthik Rangappa says:

      Nothing really happens on the next day for Bonus, Split, and dividends. However if the offer details of the buy back is good, then the share price may move up. Co incidentally, TCS has announced today (16th Feb) that they may consider a buy back of shares before 20th Feb. It will be interesting to watch what would happen to the stock price.

  84. Mihir Vidwans says:

    Hi Karthik, In Bonus issue, does the FV of the share not get affected as it does in Stock Split. As you said, The bonus shares are issued out of the reserves of the company. That means company must be transferring funds from its reserves to its authorized share capital. Foe example: a company has an authorized share capital of Rs. 1,00,000. It has issued 10,000 shares with a face value of Rs. 10 each. Thus, its issued share capital is also Rs. 1,00,000.It has an accumulated reserve of Rs. 10,00,000. It decides to issue bonus shares in the ratio of 1:1 or “1 for 1” – that is, 1 bonus share for each share held. In this case, it transfers Rs. 1,00,000 from its reserves to its authorized share capital. Thus, its reserves come down to Rs. 9,00,000, and its authorized share capital increases to Rs. 2,00,000.Using this new share capital of Rs. 1,00,000, the company issues 10,000 new shares, each having a face value of Rs. 10, and gives a new share – the bonus share – for each share held. Its issued share capital also goes up to Rs. 2,00,000. This means there is no change in FV of the shares post Bonus Issue. Is it right?

    • Karthik Rangappa says:

      Absolutely Mihir. FV does not reduce in case of a bonus issue, it is just a balance sheet readjustment. Both reserves and share capital are on the reserves side, so money is transferred from one line item to another.

  85. aravindt says:

    What is the difference between bonus issue and stock split??

  86. Uday Kumar V says:

    Hi Team,

    This is a fantastic information on stocks and trading. I have a simple suggestion on the UI layout.
    Most of the pages are read only but the header is taking more space while reading.
    Why can’t you reduce the header height on scroll down and you may show the actual height on scroll up making the pages more readable and intuitive.

    • Karthik Rangappa says:

      Thanks Uday. Will pass on the feedback to our UI designer. We do want to rehash Varsity with a completely new look etc. Hopefully should happen sometime soon.

  87. Hi,

    I had a specific query with respect to bonus share issues. What happens if one buys shares in between the ex-bonus date and record date? Since ex-bonus date is usually before the record date – what I have gathered is that the prices are adjusted in the market according to the bonus share issue proportion on ex-bonus date but record date is usually the cutoff date used by the company to register who is eligible for bonus shares. So, my question is: Do you get allotted bonus shares even if you buy shares after ex-bonus date (new adjusted price of the share) but before the record date? Ideally, that shouldn’t be the case but wanted to confirm.

    Thanks.

  88. Akash says:

    Hi,
    Like almost everybody here, I got confused on the topic of bonus shares. So if a bonus share is done at 1:1, which means that the shareholders now own 2x stocks each, but since the FV doesn’t decrease, therefore their value of investment should double, BUT, the total investment remains constant.
    In essence, Selling price = 2 x Cost price.

    • Karthik Rangappa says:

      When bonus shares are issued, 3 things happen –

      1) No change in face value
      2) Number of shares increase (based on the ratio of bonus issue)
      3) Stock price is accordingly reduced

      So net net the investment amount remains the same.

  89. Ayush says:

    Why do the price of a stock drop on ex dividend date to the price of dividend which is to be paid?

    • Karthik Rangappa says:

      If the dividend is small then the price drop is not very significant. Anyway, it drops because cash goes out of the company and gets paid to shareholders.

  90. Sudhish says:

    So if I buy shares after declaration of divident, bonus, rights etc but before ex-date, then will I get that benefit ?

  91. Sai Sreedhar says:

    Hi Karthik
    If we get bonus shares of a stock, and we sell the initially bought shares, would that be recorded as a profit or loss if the LTP is below the price bought?
    Eg. 100 shares bought at ₹100/Share [trade value ₹10,000]. If the share is trading at say 110, next after bonus of 1:1 you have 200 shares of each ₹55 [Positive Holding of ₹11,000]. So If I sell 100 Shares at ₹55 [LTP] after the bonus (which were actually bought at ₹100/share), will it be considered as a loss of 5500 as Zero Holdings? (while still having ₹5500 in your Positive Holdings, buying price of Zero! 🙂 )

    • Karthik Rangappa says:

      Bonus issue is a fairly standard corporate action. You will have to declare the bonus issue and adjust the buy average accordingly.

      • Sai Sreedhar says:

        Agreed! I am actually asking in taxation point of view, If at all we sell the shares initially bought and sold them before 365 days, would that be considered as a loss in out FY end statement?

        • Karthik Rangappa says:

          No, on an adjusted basis it is still a capital gains of 10%. If you are holding the stock for under 365 days, then STCG is applicable. LLTCG is anyway 0%.

          • Arun says:

            If my understanding of bonus shares and tax implications is correct, There is a FIFO (First in First Out) rules applicable for any stocks held in DEMAT Account.

            So going back to example in “Sai Sreedhar” question, shares got doubled from 100 to 200 after bonus shares and the price was reduced from Rs. 110/- to 55/- after bonus shares.

            So when a person sells only half of the shares (100 in his example), bases on FIFO rules, he/she is actually selling original shares which were bought at Rs 100/- (In the example given). Hence person would attract a capital loss of 100*(100-55) = Rs. 4500.

            At the same time when person sells remaining shares (100) as well, which were bonus shares, the but price for those would be considered as 0 hence it will attract a capital gain of 100*(55-0) = Rs. 5500.

            For Calculation of Short Term or Long Term, in first sale the buying date of original shares will be considered whereas in 2nd sale, allotment date of bonus shares would be considered as buying date.

            To explain it further lets say you had bought 100 shares of price 100/- on “01-Jan-2017”. You got bonus shares of 100 on “30-Aug-2017” and the adjusted price after bonus share was Rs 55/-.

            You now own 200 shares and the current price if Rs. 55/-

            You sell 100 Shares on “10-Aug-2017” at Rs 55/-

            Bases on FIFO rule, you have accrued a loss of 100*(100-55) = 4500/- which would be termed as Short Term Capital Loss and can be used to set of against any short term capital gain.

            Remaining 100 bonus shares can be hold for more than a year from the date of allotment which is “30-Aug-2017” in this example.

            So you sell these 100 shares at any date after “30-Aug-2018” there wont be any tax.

  92. Srihari says:

    Sir, I have a question regarding buy back
    Suppose the buy back price is 340, cmp is 333 and record date is 5/April/2017.
    If I purchase 100 shares tomorrow and hold it till the record date within how many days would the buy back amount be given to us? And would it be transferred to demat account or bank account?

    • Karthik Rangappa says:

      I’m not sure how long it would take for the funds to hit your account, but it would hit you bank account not DEMAT.

  93. Srihari says:

    And what is the procedure to apply for buy back?

    • Roopa K V says:

      When a buy back is announced the company issues the letter of offer along with a tender form to all shareholders who were holding the shares as on record date, this form will be sent on your registered email ID and to your registered address through post which will detail the opening, closing date, price and number of eligible shares. Do fill this form and send the signed copy to us through email we shall have the order placed on behalf of you after the transfer of your shares to the concerned RTA and on the settlement date you will receive the money to your bank account. You can either tender only the shares you are all eligible or all the shares you are holding as on record date. The number of shares you are eligible will be accepted for sure but any number of shares more than that depends on the total bids received by the company.

  94. Srihari says:

    Would all of the 100 shares be bought back by the company?

  95. subhash sultania says:

    shares bought in cum bonus date 23.03.2017 and sold on ex date 24.03.2017 before record date28.03.2017,shall i be eligible for the bonus shares

  96. Samved Sinho says:

    Quick question about Buyback of HCL Tech. As I understand, At the market price of Rs. 865 today, the stock gives you Rs. 135 return if it’s bought back at 1000. So if I buy now at 865 and get Rs. 135 in a buyback, that’s a 15.6% return in four months. I understand that not 100% stocks would be brought back, but even if they buy 50%, still we should be able to make a decent profit.
    Is there some other risk which we should be aware of before building a position to tender shares for buyback.

    • Karthik Rangappa says:

      Hey Samved, good to see you here.

      The biggest risk (in general, may not be specific to HCL) is how the buy back would be perceived by the market participants. End of the day, buy back is ‘capital allocation’ by the company. If the market perceives that they are buying back shares at higher valuation, then that is a risk. The share price will comes down, you may not be able to tender all your shares, and eventually stuck with shares bought at a higher price.

  97. venu says:

    hi,
    on 27th april vedanta and cairn swaps the stocks.what might happen to vedanta stock price on that day

  98. shabaz says:

    so,
    according to this article,
    is it right to say that we should buy those shares of companies which give much dividends

  99. Ankur says:

    Hi, I am new to market and I have doubt regarding Buyback. Take the Case of TCS for example, they have a buyback price of Rs.2850 with CMP 2320 and record date as 8 May. So, how will TCS decide that how much shares they will buyback from each reatail investor and when will I come to know of it i.e before record date or after record date ?
    Thanks.

    • Karthik Rangappa says:

      You will receive a circular directly by TCS which would contain terms of buyback. This will give you all the information you need.

      • Ragav says:

        Hi, I bought one TCS share to understand how this buyback stuff works…I haven’t received any notifications from TCS yet…Do I need to hold large number of shares to be eligible for buyback offer?

  100. Saiyed Kamil says:

    In your example, you have said if ITC is trading at 335 and it goes ex-dividend then it shall be slashed by the amount of dividend that has to be paid. here that was Rs. 5, hence ITC now shall trade at 330. BUt isn’t dividend a kind of reward which is basically given out of profit. If a company gives me dividend and simultaneously slashes the share price then in a way they are just returning my money back.
    nobody has asked this question above and it seems like I have missed out something. Please if you can clarify this.

    • Karthik Rangappa says:

      The impact on share price is especially true for very large dividend payout. You can ignore this for small value dividends.

  101. Muneer says:

    Hi,
    I had some shares of JK Tyre, I see that the company announced dividend but I have not yet recieved it.

  102. Sudarshan says:

    HI. I understood all the topics except for buyback. How does the share go up if the company buys the share back from the shareholders. Could you explain that with an example.

    • Karthik Rangappa says:

      This happens for 2 reasons –

      1) When a company announces a buy back, it indirectly conveys to the market that the people who know the business really well (i,e the company itself) perceive their share price to be really undervalued….and the fact that they are buying back, suggests that they are optimistic on the future business prospects

      2) When a company buys back shares, the bought back shares are eventually relinquished. This decreases the number of outstanding shares in the market, and hence the efficiency ratios of the company increases.

  103. Arijit Kundu says:

    What is a PENDING corporate action and how does it affects stocks ?

  104. Deepa Suvin says:

    I have 100 shares of SANWARIA, the stock is split, 1:1, But in the account the stock quantity is still showing as 100 only, where as it should be 200. Kindly clarify, when this will be reflected in my account

  105. Harish Kumar says:

    I have 340 shares of Hindustan Petroleum at an average cost of Rs. 517/-. Due to Bonus issue 1:2 rate of share has been reduced to 375.10. In my holding number of shares are shown 340 whereas it should be 510 and average cost is showing 517/- whereas it should be 345. When it will be rectified? Can i rectify it myself? If yes, how?

  106. Meet says:

    There is hyperlink on word “Hindi” just below the title… Is this content gonna available in hindi too? would be really great for mass population of india.

  107. Pandri says:

    Hi Karthik: Nice and simple explanation on various dates associated with some corp actions. I have seen in websites like Moneycontrol, Eco times etc the use of ‘EFFECTIVE DATE’. Is it the same as RECORD DATE? Since record date is a standard term why can’t people just use this rather than a non standard confusing name (i.e effective date) . Pl clarify. Thanks

  108. james says:

    Respected Sir,
    Stock price drops at the ex-dividend date or after a day or two. In fact, the exchange itself makes deductions (as per my information) & next day stock opens up with new (dropped) price. This is what I was observing till now. After all, the effect of the Corporate Actions is immediate.
    1) But, for past few months, I am observing that (almost) no stock is showing price drop at all, as if there has been no any Corporate Action. Is it due to strong bull market, or any other reason? Please Clarify.
    2) Also, popular sites, like moneycontrol, are showing ex-dividend dates for stocks, but there is no record date. Couldn’t get what does this mean? What about dividend in such cases? Please clarify.
    Thanks & Regards
    James

    • Karthik Rangappa says:

      1) No, the stock price will (has to) reflect the adjusted price. Can you please double check this?
      2) I’m not sure about how MC deals with corporate actions.

      • James says:

        Thanks Sir, that gave the protective layer of confidence to my foundation concepts. I am just wondering about this strange price behavior, (or maybe I am not able to figure out slip-up in my research).
        An example, Bharti Airtel had 13-07-2017 as ex-dividend date. When, I checked NSE site for historical data, there is no significant price change to relate to –
        12th close – 397.10
        13th open – 402.25
        14th open – 405.05
        Similar for HDFC and (all) others.
        Highly thankful if you clarify it for us all !!
        Best Regards
        James

  109. Zinnia says:

    ”When the stock goes ex dividend, usually the stock drops to the extent of dividends paid. For example if ITC (trading at Rs. 335) has declared a dividend of Rs.5. On ex date the stock price will drop to the extent of dividend paid, and as in this case the price of ITC will drop down to Rs.330. The reason for this price drop is because the amount paid out no longer belongs to the company.” Please explain the same again and what happens to stock price on record date ?

    • Karthik Rangappa says:

      When the dividend is paid out, the stock adjusts to the extent of the price paid out. Nothing more to this I guess, Zinnia.

  110. Zinnia says:

    That i have understood that the price will decrease according to it. I wanted to ask that it particularly happens on ex dividend date only ?

  111. Hitendra says:

    I can’t understand the difference between Bonus issue & stock splits, bcz the impact of both on share price and its value is same.
    Can you explain clearly with example if possible..!!!

    • Karthik Rangappa says:

      In a bonus issue, the face value remains the same….where as in split, the face value is reduced to the extent of the split.

  112. Hits says:

    If any company issue Bonus share 2:1, then its prices will be half.
    Then don’t it will affect the Nifty of Sensex if its in Nifty-50 or Sensex-30…..as they calculated by averages of them…!!!!

  113. Ranjith Kumar B says:

    Consider a company XYZ which announce Dividend x% on 01 January 2017, effective date is 01 march 2017
    Case 1: if i bought 10 share on 01 February 2017
    Case 2: if i bought 10 share on 25 February 2017

    which is most profitable?
    will share holder get equal dividend on both the cases?

  114. Ghanshyam kedia says:

    Why do the share prices fall, when the dividend is declared

  115. ROBIN says:

    Sir,
    Regarding bonus share of Reliance Ind when the bonus shares issued will be credited to my a/c?

    • Karthik Rangappa says:

      I guess the ISIN was not active, it should reflect next week. Can you please check with your broker’s support team? Thanks.

  116. SANJAY says:

    Hi Rangappa,
    What is the Record Date of INFOSYS buyback offer ? Are they yet to announce that ?
    I am hold Oct. option series ‘short straddle’ 920 strick price. If Buyback Record Date in between Oct. series, so what is the effect of Oct. option series.

  117. Madhu says:

    Thanks for enriching information scheiss-leben. Thanks for the same.
    I have one doubt regarding, why few companies don’t go for stock splitting like Eicher Motors share price is around 30000. Why these companies don’t go for stock splitting? Is it like they don’t want to encourage retail participation? What’s the company strategy behind this?

  118. ajay says:

    Hello sir,
    My doubt is based on dividend. I have shares of BSE Company.
    Company announced dividend on 5/5/17. I didn’t get till now & tell me when i get dividend.

    • Karthik Rangappa says:

      You will get it the day the company dispurses the dividend to its shareholders. You will receive this money directly to your bank id.

  119. Shubhank says:

    Hello,
    What’s the difference between Bonus and Split? Per my understanding from this chapter, both does the same thing and it doesn’t seem any profit to shareholder apart from the quantity goes up which makes equity more retailable. I may have misunderstood something, please illustrate.
    Thanks!

    • Karthik Rangappa says:

      The bonus issue is considered a stock dividend. There is no visible difference to the shareholder…they are essentially the same, stock price decreases, number of shares increases. However, there is a difference from the balance sheet perspective. Will probably put up a note on this 🙂

  120. Yoganantham Gunasekaran says:

    Hi karthik,
    Outstanding shares will increase when company announces bonus issue and stock split. Hence their Return on equity decreases and their book value also decreases right. Is this is a good or bad sign for that company.

  121. soundarya says:

    hello sir,
    i have a doubt that if i bought shares from overdraft amount,then will i get the corporate benefits of those shares or not?
    please clarify my doubt.

  122. soundarya says:

    sir, i am asking about od in demat(debit amount) leverage.will i get corporate benefits if i bought shares using leverage amount?

    • Karthik Rangappa says:

      Are you talking about taking an overdraft by leveraging your existing shares in DEMAT? Are you talking about pledging of shares? If yes, then you cannot buy shares using the pledged amount. So no question of corporate benefits.

  123. jyotshna says:

    If a company announce bonus shares in some ratio, after bonus number of shares will increase in that ratio, Please clarify
    1.) If I hold 10 shares ( I purchased 2 years back, No capital gain tax )
    and company announces 1:1 and I sell shares, will that bonus shares come under short term capital gain ?
    2.) share sell is based on first come first out basis, so what about bonus and also about split.
    3. ) In case of buyback who will be the owner of that shares ( Is it company or promoter ? Infy has extra cash, from that cash they are buying so…

    • Karthik Rangappa says:

      1) For the additional 10 bonus shares, the date of allotment of bonus shares will be marked as the buy date. 365 days hence these will be eligible for exemption of LTCG. HOwever, if you sell 10 shares out of 20, then the 10 that you sold can be offset against the initial 10 shares that you purchased. Work on the First in First Out’ basis

      2) For split, it works slightly different as this is not additional shares that you are getting. Its the existing shares which are getting split.

      3) The company will be owners.

  124. Archit Bagla says:

    Hi Karthik
    I couldn’t get one point os subtopic “Buying Back shares”

    1. Improve the profitability on a per share basis :- How does this happen. Even if the company buys some share the number of shares still remains the same right ?

    • Karthik Rangappa says:

      When buyback happens, the shares are relinquished by the company. So fewer number of shares outstanding. For example, assume Profits before buyback was 100, the number of shares (before buyback) was 10. Now profit per share is 100/10 = 10

      Assume 5 shares are bought back, profit per share –

      100/5

      = 20

  125. Dipesh says:

    Sir what if I brought stock after ex bonus date?
    I know that I’ll not get bonus on this after reading this article but should I exit from this now and purchase after the effect of bonus in stock.?? Please help..
    Thank you

  126. Himanshu says:

    I didn’t get it. What are the benefits of dividends? As I see your portfolio remains same.

    • Karthik Rangappa says:

      Dividends are cash payout made by the company against the shares held by you. This is tax-free at the hands of the investor.

  127. Kranti says:

    Hi

    Kindly please let me know that if i have shares of infosys in my demate account and if i am not applying for buyback offer will i be in loos after price adjustement after the ex date or record date

  128. avani says:

    Sir I have a doubt that whether it is benificial for a company to directly buy back its shares or first bring bonus issue and then buy back its shares? What will be the tax implications?

    • Karthik Rangappa says:

      The buyback is good if done with the right intent. It lowers the number of outstanding shares, which increases the financial metrics of the company.

  129. Kranti says:

    Somewhere in this chapter, i have seen you mentioned “To ensure you are eligible for the corporate action, you need to be a shareholder 2 days before ex bonus date.

    I have purchased infy on 26-oct-17, record date was 1-nov-17, am i eligible for buyback..?

    • Karthik Rangappa says:

      Yup, as the shares are in your demat on 30th Oct.

      • Kranti says:

        Hey Karthik — Thanks much for your reply

        I have 2.02 lakh of worth of infy shares, will i be under HNI or Retail in case i want to tender my shares in buyback offer

        What would you suggest, should i make it within 2 lakh to inhance the chances of higher acceptance ratio

  130. chinmay says:

    Hello sir,
    Have any demo app of trading terminal for gain better practical knowledge before trading ?

    • Karthik Rangappa says:

      We conduct demo of our trading platform, twice a day on youtube. At 2:30 PM and 6:30 PM. Check this – . I’d suggest you do sit through this once.

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