NTPC goes Ex-bonus in the ratio 1:5 on March 19, 2019. Here’s how it impacts your equity holdings and F&O positions


#1

As per SEBI guidelines for adjustments to F&O contracts in case of announcement of corporate actions (Methodology explained here on NSE website) :

The Board of Directors of NTPC has considered and approved Bonus at in the ratio of 1:5 i.e. 1(one) new equity bonus share of Rs. 10/-each for every 5(five) existing fully paid up equity share of Rs.10/.

The Company has fixed Record Date as March 20, 2019 , for the purpose of Bonus Shares.

Symbol : NTPC
Bonus issue ratio : 1:5
Ex-Date : March 19, 2019

Effect on holdings -

When a bonus is issued, the share price drops, in this case by a factor of 1.2 (Adjustment factor for Bonus issue of A:B is defined as (A+B)/B. In the case of NTPC, the adjustment factor is (1+5)/5 = 1.2, since the bonus issue ratio is 1:5.

So, if you held NTPC at an average price of 150, the price of each share after bonus adjustment will be 125.

You’ll be given 1 share at Rs.0 for every share 5 shares held at Rs 150, thereby maintaining your overall investment value. Please note that a bonus issue only increases liquidity and not your investment value.

Adjustments for Option Contracts -

  1. Strike Price: The adjusted strike price shall be arrived at by dividing the old strike price by the adjustment factor.
  2. Market Lot: The adjusted market lot shall be arrived at by multiplying the old market lot by the adjustment factor. The revised market lot would be 4800.

Ex - NTPC 28-MAR-2019 160.00 CE 4000, after adjustment will be NTPC 28-MAR-2019 133.35 CE 4800

Adjustments for Future contracts -

  1. Futures base price: The adjusted futures base price shall be arrived at by dividing the old futures price by the adjustment factor.
  2. Market Lot: The adjusted market lot shall be arrived at by multiplying the old market lot by the adjustment factor. The revised market lot would be 4800.

Ex - NTPC 28-MAR-2019 148.65 of lot size 4000, after adjustment will be NTPC 28-MAR-2019 123.90 of lot size 4800

Note - The above changes are effective from March 19, 2019. Refer to the circular from NSE regarding this for more information. To know more about the impact of corporate actions on stock prices, check this chapter on Varsity.


#2

So I was supposed to get the bonus share credited on 28th March?