Reliance has declared a bonus issue and goes ex-bonus in the ratio 1:1 on 7 Sep 2017. Please explain how it affects the average price and P&L of my holdings and F&O positions.
Reliance Industries Ltd goes ex-bonus in the ratio 1:1 on 7 Sep 2017, i.e. 1 bonus share issued at Rs.0 for every share 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 2. So if you held Reliance shares at an average price of Rs.1400, the price of each share after bonus would adjust to 1400/2 = Rs.700. Each share will become 1 share at Rs.700 and 1 bonus share at Rs.0, 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 Reliance holdings in Kite/Q will show a drop in P&L of approximately 50%. Once the bonus shares are credited at an avg price of Rs.0, your P&L 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.
Here are the steps on How to add bonus share price in Q backoffice.
Effect on F&O positions:
Option strike prices are divided by the factor of 2. A strike price of 1600 becomes 800, 1620 becomes 810 and so on. F&O lot sizes are multiplied by the factor of 2. The old lot size of 500 will be revised to a new lot size of 1000.
The future and option prices are divided by the factor of 2 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 and the new lot size will be updated on Kite.
To know more about corporate actions and its impact on stock prices, do read this Varsity article.