Grasim Industries Limited (GRASIM) has decided to issue equity shares on a rights basis in the ratio of 06:179, i.e. 6 Equity Shares for every 179 Equity Shares held, at an issue price of Rs. 1812 per equity share. Further, the company has fixed the ex-date as January 10th, 2024 to determine the shareholders who will be eligible to apply for the Issue.
As a result, the Futures and Options contracts of GRASIM will be adjusted according to the framework prescribed by SEBI. The adjustment will result in a change in the Strike Price and Lot Size of Options and the Price and Lot Size of the Futures contracts. The changes will come into effect on the ex-date, January 10, 2024. You can check the announcement from the exchange here.
SEBI has prescribed a framework to the exchanges for adjustment of corporate actions in derivative contracts at the time of the corporate action. The exchange has published everything regarding the adjustments in the case of corporate actions here. The adjustments are carried out so that the value of the position of the market participants, on the cum and ex-dates for the corporate action, continues to remain the same as far as possible.
Here’s how the adjustment works:
The adjustment factor for the rights issue of Grasim Industries Limited (GRASIM), with a rights ratio of 06:179 and an issue price of Rs. 1812, is calculated as follows:
Adjustment of Futures Contracts:
Futures base price: The adjusted Futures base price shall be arrived at by multiplying the old Futures base price by the adjustment factor.
Futures lot size: The adjusted market lot shall be arrived at by dividing the old market lot by the adjustment factor. The revised market lot would be 477.
Example: If you are holding a position in GRASIM JAN FUT and on pre-ex-date (January 09, 2024) futures close at 2000, on ex-date the price will be adjusted to 1992 (Price on pre-ex-date: 2000 * Adjustment Factor: 0.996040). While the lot size will be adjusted to 477 (Current lot size: 475 / Adjustment Factor: 0.996040).
Adjustment of Options Contracts:
Strike Price: The adjusted strike price shall be arrived at by multiplying the old strike price by the adjustment factor.
Lot Size: The adjusted market lot shall be arrived at by dividing the old market lot by the adjustment factor. The revised market lot would be 477.
Example: If you are holding a position in GRASIM 2000 CE, the current lot size is 475. On ex-date, the 2000 CE will be adjusted to 1992 CE (Strike Price: 2000 * Adjustment Factor: 0.996040) and the lot size will be adjusted to 477 (Current Lot Size: 475 / Adjustment Factor: 0.996040).
While those holding positions in F&O contracts are not eligible for corporate action benefits. If you are holding equity shares of GRASIM on the record date (January 10, 2024), you will be eligible to receive Rights Entitlements (REs).
These REs will be temporarily traded on the stock exchanges and will then be extinguished. You can either use the REs to apply for the rights shares of the company or you can sell them in the market. Explained here.