Investors holding shares in Bajaj Finance experienced a brief moment of alarm when they noticed a steep 90% drop in the value of their holdings in their demat accounts. However, this apparent decline was not a result of market fluctuations but rather the consequence of a stock split and bonus issue announced by the company. These corporate actions, aimed at rewarding shareholders, have temporarily skewed the apparent value of holdings until the processes are fully executed.
Bajaj Finance recently approved two significant corporate actions designed to benefit its shareholders. The first of these is the issuance of bonus shares in a 4:1 ratio. This means shareholders will receive four additional shares for every one share they currently own. Such a move is typically employed by companies to encourage retail participation and increase liquidity in the market.
The second action is a stock split in a 1:2 ratio. Each existing share, initially with a face value of Rs 2, will be divided into two shares with a face value of Re 1 each. Stock splits are commonly used to make shares more affordable and attractive to small investors, thus broadening the shareholder base.
To understand the impact on individual investors, consider an example where an investor holds one share of Bajaj Finance. With the 4:1 bonus issue, the investor will receive four additional shares, thereby increasing their total holding to five shares. Following the stock split, each of these five shares will be split into two, resulting in a total of ten shares in the investor’s portfolio.
It’s important to note that while the number of shares held by an investor increases significantly, the total value of the investment remains unchanged. This is because the share price is adjusted proportionately to the increase in the number of shares, thus maintaining the overall value of the investor’s holdings. Essentially, the market capitalization of Bajaj Finance remains the same post these corporate actions.
Bajaj Finance has confirmed that the process of the bonus issue and stock split will be completed by June 27. Investors are advised that their updated shareholding will reflect in their demat accounts once the process is finalized. Therefore, if an investor currently holds one share, they can expect to see ten shares in their account upon logging in after June 27.
These corporate actions are part of Bajaj Finance’s strategy to enhance shareholder value and make the stock more accessible to a broader investor base. Such actions can lead to increased trading volumes and improved liquidity of the stock in the market.
Investors should remain calm and wait for the completion of these processes to see the updated value of their holdings. It is crucial to understand the mechanics behind stock splits and bonus issues to avoid unnecessary panic when the apparent value of investments changes due to these corporate actions.
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Note: This article is inspired by content from https://economictimes.indiatimes.com/markets/stocks/news/bajaj-finance-shares-didnt-crash-90-heres-what-a-stock-split-and-bonus-really-mean/articleshow/121874688.cms. It has been rephrased for originality. Images are credited to the original source.