BSE shares gain 5% as it adjusts for 2:1 bonus issue, stock trades ex-date

Goldman Sachs maintained a 'Neutral' rating on BSE and set a price target of Rs 5,340

BSE shares rose 5 percent on May 23 as the stock traded ex-date for its 2:1 bonus issue. This means the pre-bonus price of Rs 6,996 was adjusted to Rs 2,332 to account for the increase in share count. Since the stock actually traded at Rs 2,449 on the ex-date, it recorded a gain of about 5 percent over the adjusted price.

This corporate action, effective May 23, means BSE shareholders will receive two bonus shares for every one share held, effectively tripling the number of shares in circulation.

However, this increase in share count results in a proportionate adjustment to the stock price. Some trading platforms and stock screeners may show this as a steep price fall, but it’s a normal outcome of the bonus issuance process.

This timeline is governed by the T+1 settlement system followed in Indian equity markets, where trades are settled one working day after the transaction date. Therefore, to be eligible for the bonus shares, investors needed to purchase BSE shares by May 22 so that the trade would be settled and reflected in their demat accounts by May 23.

Catch all the market action on our LIVE blog

This is only the second time since BSE got listed in 2017 that the board has approved a bonus issue.

Companies generally issue bonus shares to convert their free reserves into share capital. This helps in increasing the number of outstanding shares, which usually reduces the Earnings Per Share (EPS) and boosts the paid-up capital, while simultaneously reducing the reserves. Since these bonus shares are issued at no extra cost to the shareholders, they are also referred to as free shares.

In addition to the ex-bonus adjustment, BSE stock also faced selling pressure due to reports that SEBI is reviewing NSE’s proposal to shift the weekly index options expiry day to Tuesday.

Reacting to this development, global brokerage firm Goldman Sachs maintained a 'Neutral' rating on BSE and set a price target of Rs 5,340.

According to Goldman Sachs, if this proposed change is approved, BSE’s market share in index options premiums could drop by around 3 to 4 percentage points, or roughly 15 percent. This would lower its share to 18.8 percent from the current 22.2 percent, based on year-to-date trends.

The brokerage also noted that 24 percent of index options premiums in India have been traded on Tuesdays so far this year, which is significantly higher compared to the 16 to 19 percent seen on other weekdays.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.