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Unravelling the Fall of NBCC India Shares on Trading Apps
Shares in NBCC (India) Ltd had fallen by more than 30% on some mobile apps today. But what many would have missed is that this is not really a fall in value, but an account sort of correction to reflect the bonus issued recently by the company. Today, the stock of the company went ex-bonus, and this resulted in a beating in direct proportion with the bonus shelled out.
Bonus Issue: How It Works
After declaration of the bonus issue wherein one new share for every two held by the shareholders is being credited to the existing ones, NBCC India has declared October 7, 2024, as the record date for this bonus issue. Shareholders of the company as registered in its books shall be eligible to get these bonus shares as of that date. The adjustment of the share price is part of the normal process after declaration of the bonus issue to arrive at the calculated number of shares.
Bonus distribution increases the number of shares outstanding. This generates a greater number of shares available in the marketplace. Consequently, the stock tends to fall. The distribution per share does not contribute to the total value for shareholders; it simply divides the value between more shares.
Why the Drop May Appear Larger on Some Platforms
While the NBCC India shares are showing rise on the Bombay Stock Exchange, the prices are up 3.99 percent at Rs 117.25 after adjustment. Now, some mobile trading apps show the unadjusted price, and hence these are reflecting the fall of over 30%. Therefore, investors need to note that in reality, it is not the loss but an adjustment made to reflect in tandem with the issuance of bonus shares.
Generally, some trading applications may consider some time to be updated with the new stock price post a bonus issue. Hence, for some considerable time, there may be some confusion regarding the actual prices in the trading platform among investors. But the adjusted price, which would actually be in tune with the real value of the shares, must be reflected after the data gets updated in the applications.
Recent Performances of NBCC after Bonus Issue
Despite the brief downturn on some of these platforms, shares of NBCC India have had a good year so far. The stock has risen 109% this year and surged 192% during the last 12 months as investors continue to pour into it and others, showing still considerable confidence in the market overall. On the smaller time period that includes the last three months, shares of NBCC India are off 7.4%, which, following such massive gains, is to be expected.
The bonus shares will be allotted to the shareholders who held their respective shares as on October 7 record date, and this will be made two months from approval and, therefore, by 31 October 2024. Bonus issuance for long-term investors improves the liquidity of stocks, reduces the price of the particular stock, and involves more participants in the company's growth story.
History and Investor Impact at Previous NBCC
NBCC India, earlier, had made bonus shares in the year 2017 by implementing the bonus issue mechanism to increase the liquidity of stock and reduce individual share prices. The new share issued for the company is indeed with the objective of distributing its reserves and surplus equitably among its shareholders.
An unassailable net reserve balance of Rs 1,959 crore on March 31, depicting a strong financial position of the company. One strategy is to gear this bonus issue up because it will benefit the old shareholder along with new ones at the reduced price per share.
What Should Investors Do?
For those who are seeing a price dip on some trading apps, need not worry. The fall is being caused by the technical correction for the bonus shares; once the apps update their data, it will get reflected in the right market value. Investors should understand that their holding value in total has not changed at all, but gets spread across more shares.
Inputs by Agencies
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