Shares of insurance behemoth (LIC) flashed a 50% downside from the last closing price on the National Stock Exchange (NSE) on Friday, 29 May.
LIC share price touched an intraday low of ₹416.25 as against the last close of ₹830.
Today, the PSU stock has turned ex-record for its 1:1 bonus issue. Investors must understand that this decline is due to an adjustment in LIC’s stock price in line with the bonus issue and not an actual loss.
A 1:1 bonus issue means that for every share you own, you receive an additional share for free. This essentially doubles the number of shares. Since the number of shares rises, the price of the stock is adjusted downward proportionately on the ex-bonus date.
Investors are not losing money due to the “fall”. It is simply a price adjustment due to the bonus shares. The bonus shares are usually credited to eligible shareholders a few days after the record date.
More to come…