Larsen & Toubro goes ex-bonus in ratio 1:2 on 13th July. Please explain how it affects the average price and P&L of my holdings and F&O positions.
L&T(Larsen and Toubro) goes ex-bonus in the ratio 1:2 on 13 July 2017, i.e. 1 bonus share issued at Rs.0 for every two shares held in the Demat account of all eligible shareholders.
Effect on Holdings:
When a bonus is issued, the share price drops, in this case by a factor of (1+2)/2 = 1.5. So if you held LT shares at an average price of Rs.1500, the price of each share after bonus would adjust to 1500/1.5 = Rs.1000. You’ll be given 1 share at Rs.0 for every two shares held at Rs.1000, thereby maintaining your overall investment value.
Please note that a bonus issue only increases liquidity and not your investment value.
Until the bonus shares are credited to your Demat, your Holdings will show an artificial drop in P&L of approximately 33%. Once the bonus shares are credited at an avg price of Rs.0, your P&L in Kite/Q will be restored to its correct value.
You will receive an SMS from CDSL when your bonus shares are credited to your Demat which could take upto 2 weeks.
Steps on how to update bonus share price in Q backoffice.
Effect on F&O positions:
Option strike prices are divided by the factor of 1.5. A strike price of 1780 becomes 1186.65, 1800 becomes 1200 and so on. F&O lot sizes are multiplied by the factor of 1.5. The old lot size of 500 will be revised to a new market lot size of 750.
The future and option prices are divided by the factor of 1.5 to maintain the same contract value as of before the bonus issue.
If you’re unable to see the revised market lot size on Kite, please do a hard refresh Ctrl+Shift+R to clear your Kite cache memory.
To know more about corporate actions and its impact on stock prices, do read this Varsity article.