Key Contents
Today, the company’s shares dipped drastically on the NSE; the CDSL share price plunged by almost 48%. This fall is not a result of any operational problem or negative news, but is attributed to trading in the stock ex-bonus. However, the 1:1 bonus share announced by CDSL actually increased the number of outstanding shares by hundred percent and therefore an equal adjustment was made on the stock price.
What is the CDSL Bonus Share Issue?
The CDSL Bonus Share Issue is a corporate event that occurs when a company issues bonus shares to its shareholders, after getting the approval from the CDSL.
Bonus issue of shares can be defined as the process whereby a company floats more shares to its current holders at no cost. For instance, CDSL, the company that was the focus of Scheinin’s study, declared a 1:1 bonus shares offer which simply implies that for every share owned, the investor is granted one more share.
As for the aim and objective of bonus share issue it basically helps in enhancing the liquidity of the stock prices and is thereby cheaper to investors. It is an indicator of sound financial position of the company and an outcome to shareholders. But in turn, they cause a temporary change in the CDSL share price, given the fact that the number of its shares has now increased.
Why Did the CDSL Share Price Drop?
CDSL share opened lower as it traded ex-bonus, with the stock price dropping to nearly 50% of its previous level. The share price also moves proportionately when a firm declares bonus shares because, the number of shares outstanding increases. This is as follows, after CDSL had issued 1:1 bonus the number of shares increased to two times hence it reduced the stock price by half.
Ex-Bonus Date and Its Impact on CDSL Shares
The term ‘ex-bonus’ refers to that position where the stock is being traded without a bonus privilege. The bonus shares are offered to those who have purchased CDSL shares prior to the ex-bonus date, but those who purchase the shares on or after the ex-bonus date hold no right to receive the bonus shares.
The record date for bonus was to be fixed for CDSL to decide the shareholders who would be eligible for the bonus shares. To the date this corporate action takes effect the stock in question is cheaper than before the corporate action but the total value of stock owned by investors does not change.
How Does the CDSL Bonus Issue Affect Investors?
While the share price of CDSL has come down, actually the worth of the investors’ portfolio has not eroded. This can be because the amount of equity they hold has increased to two folds while at the same time the price per share has reduced to half.
For instance:
Before the bonus: In the case of CDSL if an investors holds 100 shares which contribute ₹1000 each, then the total worth of his/her portfolio would be ₹100000.
After the bonus: The investor now owns 200 shares which at ₹500 per share retain the total investment level of ₹1,00,000.
The cut is a technical one and they, the investors, have nothing to fear as far as the value of their investments is concerned.
CDSL News Today: Bonus Issue Creates Positive Market Sentiment
The bonus issue that has taken place at the CDSL has been much acclaimed in the market since it indicates the firm’s belief in its future development. Being the second-largest depository in India CDSL occupies an important position in the growth of financial market infrastructure of India that focuses on the electronic securities and demat accounts.
This has worked in the favour of the company since there has been a rise in the number of demat accounts opened; courtesy the enhanced participation from the retail investor and the improved arrival of digital financial solutions.
Why CDSL is Falling Today: The Real Reason Behind the Price Drop
Thus, a usual question that may come to the mind of many investors today might be, “Why is CDSL falling today?” The above-stated stock price fall in the CDSL share price is strictly on account of the ex-bonus trading. This we consider a normal outcome of the bonus issue and it cannot in any way be considered a negative effect on the company. This is a book value adjustment arising from the bonus issue by the CDSL; nevertheless, it will be seen that the total worth of shareholders’ stakes has not changed in anyway.
Looking Ahead: What to Expect After the CDSL Bonus Issue
Thus, after the bonus record date with CDSL, the stock price will set at the adjusted stock price. Due to increased uptake of the shares by retail investors taking leverage of the low stock price, the liquidity of CDSL shares is expected to increase. The bonus issue has made the stock affordable, thus would lead to more number of investors as well as higher rates of turnover.
In the eyes of long-term investors, the bonus issue is considered as favorable undertaking. CDSL has remained active in the sector of depository and dematerialization in India and there also remains a positive trend in terms of their growth with the help of the expansion of the demat accounts and enhancement of the retail investors in the foreign exchange market.
Conclusion: CDSL’s Price Drop is Technical, Not Fundamental
The nearly 50% drop in the CDSL share price is a direct result of the 1:1 bonus issue. While the price has decreased, investors’ total holding value remains the same. This corporate action is designed to increase liquidity and make the stock more affordable for a wider range of investors.
For those who held CDSL shares before the ex-bonus date, this is a rewarding move that does not impact the value of their portfolio. As the stock stabilizes post-bonus, it could attract new investors and continue its strong performance in the long run.
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Sources: OneIndia, Outlook India, India Today