HDFC Asset Management Company (HDFC AMC) began its Wednesday trade with a sharp 50% cut on the screens, making it seem like something had gone wrong overnight.
But the fall is simply the outcome of the stock adjusting to its 1:1 bonus issue. The stock, which closed at Rs 5,336.50 on November 25, opened at around Rs 2,682 on November 26.
In reality, the adjusted price kept the stock marginally in the green. For investors unfamiliar with bonus issues, the change can appear confusing at first glance.
HDFC AMC: Understanding what exactly is a bonus issue?
Now understanding the bonus issue in a simpler way, it means that a company gives additional shares to its existing shareholders for free. For example, in a 1:1 bonus, shareholders receive one extra share for every share they already own.
Moreover, these shares come from the company’s accumulated reserves and do not require investors to pay anything.
The key point is that while the number of shares doubles, the overall value of the investor’s holding remains the same because the market price adjusts downward. This is why a 50% fall is visible on the charts mathematically, not fundamentally.
HDFC AMC bonus issue: Why the market sees a big fall even though nothing’s changed
When a stock turns ex-bonus, the share price is automatically adjusted to reflect the increased number of shares in circulation. In the case of HDFC AMC, it has issued one bonus share for every existing share, the price drops to roughly half. This is standard practice across stock exchanges and is done to maintain proportional valuation.
To make it more simple, for instance, if an investor had one share worth Rs 5,336, after the bonus issue they will have two shares worth roughly Rs 2,668 each. The total value stays the same.
HDFC AMC bonus issue: Record date and eligibility details
HDFC AMC fixed November 26 as the record date to determine which shareholders would receive the bonus shares. Investors needed to hold the stock by the end of trading on November 25. The stock became ex-bonus one day earlier, meaning that any purchase on November 26 would not qualify for bonus entitlement.
This is HDFC AMC’s first bonus issue since listing.
HDFC AMC: Why the value of your holdings remains intact
Bonus issues do not dilute ownership. They only split the value across a higher number of shares. The company confirmed that it will issue 21.40 crore bonus equity shares, funded through its Capital Redemption Reserve Account and Securities Premium Account.
For investors, this adjustment increases liquidity and makes the stock more affordable without affecting the overall market capitalisation of the company.