The shares of Godfrey Phillips appeared to have crashed around 66 percent in one single session on September 16, as the stock price adjusted to a bonus issue of shares. The stock in reality jumped more than 9 percent after turning ex-bonus.
Godfrey Phillips' board of directors during a meeting in August had approved the issue of bonus shares in the ratio of 2:1. The record date to determine the eligibility of the shareholders set to receive the bonus equity shares was set on September 16.
What is a bonus issue?
A company announces bonus issue of shares to reward its existing shareholders with an investment opportunity, which is perceived to be attractive. While the issue of bonus shares increases the total number of shares issued and owned, it does not change the market capitalization of the company. This increases the overall liquidity of the stock, and makes it more affordable for other investors to add to their portfolio, creating strong upside potential for the stock.
Godfrey Phillips share price: Key details
As a result, Godfrey Phillips’ shares appeared to have crashed 66 percent in one session, while in reality, they simply adjusted to the bonus issue. The stock jumped more than 9 percent to hit an intraday high of Rs 3,720 apiece.
After the issuance of bonus shares, the company's market capitalization stands at around Rs 57,401 crore and the stock's P/E ratio nears 161.
The issuance of bonus shares will likely increase investors' confidence for the stock, as it reflects on the firm's strong financials and growth potential. Bonus issue essentially are free shares offered by a company from its reserves. Investors must own shares of the company as on the record date to be eligible for the bonus issue.
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