Have you ever seen a sharp increase or decrease in stock prices and looked upon the news to see what could be the reason behind it? Sometimes it is a drastic event or any news related to the company such as yearly results, quarterly results, board meetings, etc collectively known as corporate actions. Let us briefly look at what corporate actions are:
A corporate action is an event initiated by a public company that brings or could bring an actual change to the securities issued by the company. If you're a shareholder or considering buying shares of a company, you need to understand how an action will affect the company's stock. A corporate action can also tell you a great deal about a company's financial health and its short-term future. These corporate actions can be either monetary e.g. dividend, or non-monetary e.g. Bonus, rights, or stock splits.
In this article, we will discuss some of the important corporate actions that can have an impact on the stock prices of the company and how IIFL is empowering you to make better trading decisions based on these actions.
Following are the steps to see Corporate Actions on the charts from IIFL Markets app
From the chart, click on the menu button (marked in the red circle in the image below).
You’ll see the side pane on the right edge of the screen. Click on the flag button (marked with a red circle in the image below).
You’ll see a pop-up with the list of corporate actions.
Events (Board Meetings, Annual General Meeting, Extraordinary General Meeting)
Select the actions you want to be plotted on the chart. You’ll see the markers plotted on the day of execution of the corporate action.
You can click on the market to see brief information about the action.
Now let’s see how various corporate actions impact the price of a stock
Dividends: A dividend is the portion of the profit that the company distributes among its shareholders. Dividends are paid on a per-share basis. For example, in July 2021 Mindtree had declared a dividend of Rs.17.5 per share. When a company declares a dividend, the announcement may lead to an increase in stock purchases since everyone wants to own it. However, it does not have a long-term influence. Moreover, share prices go down by the dividend amount on the ex-dividend date and if the dividend rate is too low, it may not have a major impact on the share price of the company.
Bonus Shares: Bonus shares are issued by the company to the shareholders out of the company’s profits or reserves. Bonus shares are issued to encourage retail participation, especially when the company’s price per share is very high, and it becomes tough for new investors to buy shares. When a company issues bonus shares, the share price of the stock falls down in the same proportion as the bonus share issue. By issuing bonus shares, the number of outstanding shares increases, but each share’s value reduces. The face value remains unchanged.
Rights Issue: The firm declares a rights issue as an effective method of increasing its share capital. Existing shareholders are offered the option to purchase the company's shares in a rights issue. You can think of it as a second IPO to a selected group of people (existing shareholders). The shareholders can subscribe to the rights issue in the proportion of their shareholding. For example, 1:2 rights issue means every 2 shares a shareholder owns; he can subscribe to 1 additional share. The new shares under a rights issue are issued at a lower price than the existing market price so as to give a benefit to the existing shareholders.
Split or Stock Split: A stock split splits the stock into two or more portions. When the company declares a stock split, the number of shares held by the investor's increases, but the investment value/market capitalization remains the same just like bonus issues. A stock split is announced to encourage more retail participation by reducing the value per share. Face value goes down by the ratio of a stock split. For example, a stock with a face value of Rs.20 splits the share in a 1:2 ratio, then the face value of the stock will become Rs.10 after the stock split.
Board Meetings: A Board Meeting is a formal meeting of the board of directors of an organization and any invited guests, held at definite intervals and as needed to review performance, consider policy issues, address major problems and perform the legal business of the board.
Annual General Meeting or AGM: An Annual General Meeting (AGM) is held to have an interaction between the management and the shareholders of the company. The Companies Act, 2013 makes it compulsory to hold an annual general meeting to discuss the yearly results, auditor’s appointments, and so on. The purpose of AGM may include electing a board of directors, making important decisions regarding the organization, and informing the members of previous and future activities.
Extraordinary General Meeting or EGM: An extraordinary general meeting (EGM) is a shareholder meeting called other than a company’s scheduled annual general meeting (AGM). The extraordinary general meeting is used as a way to meet and deal with urgent matters that arise in between the annual shareholders' meetings like the removal of an executive, a legal matter, or any matter that can't wait until the next shareholders meeting.
We at IIFL want our customers to have the best experience possible therefore we strive to equip the customers with all the possible tools to help you trade better. Showing Corporate actions on charts is one such feature we feel will help the customer to trade better and be aware of the events that can affect the security’s prices.
For more such amazing features stay tuned with us to find out what more you can do in our application to help you trade better.
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