Seems like Nykaa just tried to apply cosmetics to markets.
I just wrote that in English to make it sound good but you know what I mean ryt? 
Why I’m I saying that?
In last 30 days, Stock prices were nearly 20% down, possibly due to a combination of factors ; Average results and performance (Flat sales, low margins and average unique users) , Expensive valuation ( remember FY41 based earnings projections, PE in 4 digits bla bla bla) and the one year Lock-in period ending for it’s pre-IPO investors.
Around 31.9 crore (almost 67% ) of the equity will be open for trading now. Basically, if things remained the same trend wise, what it would do is ensure there is more selling due to 2 factors.
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Existing investors selling in anticipation that the biggies will come and sell more leading to further fall in share prices.
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Biggies actually doing that. Like how it happened in Zomato (The fell 30% in couple of days)
Basically, things were not looking that easy and the company announced bonus shares. Fine. It’s all good. Investors get more shares (5 for 1 in this case) , then what’s the issue?
The Record date bonus issue was slated to happen on 3rd November but it got postponed to 11th November exactly coinciding with the date of end of lock-in period.
This attempt to time bonus issue with end of lock-in period has two key implications.
Managing share price
- It has got to do with managing share prices by arresting the fall as bonus shares would generally take 15 days to hit the accounts, so no selling for 15 days , as share price is 1/5th suddenly and by the time rest of the shares hit the account, it will also give pre-IPO investors a comparatively smooth exit as there would be more liquidity in the market with more people buying the “apparently cheap shares”.
Taxation Dilemma
- The complicated one : The taxation bit
Long story short - It basically DISCOURAGES one set of investors to sell the newly issued bonus shares as they will be taxed at 15% STCG instead of 10% LTCG (if they hold for one more year). It also ENCOURAGES another set of investors (Pre-IPO investors) to book their capital gains and pay lesser tax as the sale price will be lower compared to Ex-bonus price.
More reading on this : The good, bad and ugly of Nykaa’s bonus issue
BOOOM
