The impact of corporate actions on stock prices and Futures & Options (F&O) contracts depends on the type of action: - - BONUS ISSUE:
A bonus issue is when a company gives free additional shares to existing shareholders in a specific ratio, like 1:1.
Impact on Stock Price: The stock price decreases proportionally since the total value of the company is now divided among more shares. For example, if the share price is ₹100 and a 1:1 bonus is issued, the new price becomes ₹50, but the shareholder holds twice as many shares.
Impact on F&O Contracts: The exchange adjusts the strike price downward and increases the lot size to maintain the same total contract value.
- STOCK SPLIT:
A stock split divides existing shares into smaller units to make the stock more affordable and increase liquidity. For example, if a 1:5 split turns one ₹500 share into five ₹100 shares.
Impact on Stock Price: The price drops based on the split ratio, but the total value of the investor’s holdings remains unchanged.
Impact on F&O Contracts: Lot size increases and strike price decreases proportionally, keeping the total contract value unchanged.
- DIVIDEND:
Dividends are cash payouts made from a company's profits.
Impact on Stock Price: On the ex-dividend date, the stock price generally drops by the dividend amount, particularly for large payouts.
Impact on F&O Contracts:- Ordinary Dividend (≤ 2% of market price): No adjustment is made.
- Extraordinary Dividend (> 2% of market price): The strike price of options and futures settlement price are reduced by the dividend amount to maintain fairness and prevent arbitrage.
For example, if a ₹500 stock announces a ₹15 dividend (3%), the strike price of options is reduced by ₹15, and futures prices reflect this adjustment after the ex-date.
RIGHT ISSUE:
A rights issue allows shareholders to buy additional shares at a discount, often in a fixed ratio.
Impact on Stock Price: The stock price may fall slightly due to dilution, as more shares are issued at a lower price.
Impact on F&O Contracts: The exchange adjusts both strike price and lot size using a standard formula to account for the rights entitlement.
BUYBACK/DELISTING:
A buyback is when a company buys back its own shares, often at a premium to the market price. Delisting means the company’s shares are removed from the exchange.
Impact on Stock Price: Buybacks can drive prices up if the offer price is attractive. In delisting, the price may become volatile based on investor perception and exit opportunity.
Impact on F&O Contracts: Normally, there is no adjustment unless the corporate action significantly affects the company’s structure or float.
- MERGER/DEMERGER/SPINOFF:
These involve restructuring where companies combine (merger) or split (demerger/spin-off).
Impact on Stock Price: In a merger, the price reflects the combined valuation of both companies. In a demerger/spin-off, the price of the original company may fall, and shareholders may get shares of the newly formed entity.
Impact on F&O Contracts: The exchange may adjust contracts or introduce new ones to reflect the value of the new structure.
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