If I have a bonus of 1:3. It means for every 3 shares, you will get 1 share.
If I have 100 shares of Wipro at 268.85 ; I will get 33 shares. And for the fraction, you will be paid in cash as per the value on the record date. (100/3 = 33.33)
Bonus shares are usually announced by the company with a record date , the date which is considered for the bonus shares . All the investors holding the shares on the record date are eligible for bonus shares . The company usually gives bonus shares as a substitute for dividend payouts.
In this case, Record Date is 07/03/2019. If you buy the shares of the company at this date, you will be settled the shares in T+2 days (Equity takes T+2 days to settle)
The last date to buy the shares if someone buys the share he will manage to hold the shares in 7/3/19 is 5/3/19. Right?
So, 6/3/19 is called ex-bonus day (Without bonus day!). The market adjusts the share price in this day actually!
But now the question is 33 shares at what price? Obviously, Company is giving you free! It is zero.
1 share of Wipro costs 272.7 at the end of 5/3/19. Now the question is how the market will adjust the stock price? More, importantly, how it should?
100 share of Wipro previously costs - 272.7*100 - 27270 INR.
133 share of Wipro now costs - 27270 INR.
1 share of Wipro now should be adjusted to - 27270 /133 - 205.037594 INR
But instead of opening down to 205, it gapped up! Why?
The Market is inefficient!
We can see a gap down on 7th March. This happened because there are some people who bought it just to get the bonus shares. There is no point of holding the stocks post bonus shares.
So, they exited. The stock fell!
Now the most important question is - Is there any way to quantify this whole thing? The amount of drop that may happen the next day? What is the best way to do so?
Announcement Date 18/01/2019
The same people who exited will also enter and many other people will enter anticipating this up move (Generally technology stocks tend to go up when a bonus is announced).
Marked the closing price of 17/01/2019 which is 251.55
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I will write the rest later. BRB.