Explained: Why HDFC Bank share price falls after adjusting to bonus issue

Mumbai, Aug 26 (IANS) HDFC Bank share price fell over a per cent on Tuesday after the stock turned ex-date for bonus issue, declining as much as 1.45 per cent in the range of Rs 982–986 apiece on the BSE.

However, the steep decline in the stock of India's biggest private sector lender had not happened due to any adverse impact on the bank’s financial health.

Rather, it was the outcome of a technical adjustment made after the bank's 1:1 bonus share issue, which went into effect when the stock started trading ex-bonus on the BSE and NSE.

Earlier in the morning, this adjustment caused HDFC Bank’s stock price to open over 62 per cent lower, trading in the range of Rs 982–986 per share, compared to the previous day’s close of around Rs 2,600.

Though it appeared dramatic on market screens, the fall was purely mathematical as the stock was trading nearly a per cent down post the bonus share adjustment. At around 3:07 pm, HDFC Bank shares were trading at Rs 970.90, down 0.94 per cent.

Every shareholder gets one extra share for each share they currently own under this bonus issue.

This raises the quantity of shares in circulation, but it has no effect on the company's overall worth or the wealth of investors. Rather, the higher share count is reflected in a proportionate adjustment to the share price.

Bonus share issuance is generally seen as a wise business decision that shows management's faith in the company's long-term earnings prospects. Additionally, they increase market liquidity, lower the cost of shares, and promote greater involvement from retail investors.

August 26 was chosen as the record date for HDFC Bank's bonus issue. For each existing share held by investors on that date, one fully paid-up bonus share will be awarded.

Meanwhile, the domestic equity indices experienced a sharp decline on Tuesday after a draft notice published by the Department of Homeland Security (DHS) revealed that US President Donald Trump plans to go ahead with 50 per cent tariffs on Indian goods from Wednesday.

--IANS

aps/na