What Are Corporate Actions? How Can It Impact Stock Prices?
When the management of an organization or the board of directors of a public limited company takes action, it is called corporate action. The corporate action should be impacting the organization's financial statement to be called as such. Any change in equity, debt or financial securities issued by the organization due to a management decision is classified as a corporate action.
Corporate actions by a publicly-listed organization affect the stock price. Shareholders should be aware of this and understand how corporate actions affect their stocks' prices. A corporate action also provides information on the organization's overall financial health, short and long-term prospects, and many other parameters.
Investors can be better off offloading their share management activities to a brokerage firm. Independent and novice investors in the let-me-find a stockbroker near me or share broker can do so fast.
Corporate Actions in the Indian Stock Market:
Latest Moves in 2025
December 2024:
NMDC's Bonus Issue of Shares (2:1)
Iron ore major NMDC declared a 2:1 bonus issue, in which two shares were given for every one held by the shareholders. The record date was fixed for December 27, 2024, and trading commenced at the end of the month.
Vedanta's Declaration of Dividend
Vedanta paid its fourth interim dividend of Rs.8.5 per share (face value of Rs.1), aggregating to approximately Rs.3,324 crore. The dividend record date was December 24, 2024.
Mazagon Dock Shipbuilders' Stock Split
The shipbuilding firm authorized a stock split, cutting the face value of its shares from Rs.10 to Rs.5. The step was to improve liquidity and availability for retail investors.
Aayush Wellness and Bharat Global Developers' Bonus and Stock Split
Aayush Wellness gave a 1:2 bonus, whereas Bharat Global Developers, in addition to declaring an 8:10 bonus, also carried out a stock split where Rs.10 shares were split into Rs.1 shares.
January 2025:
Dhanlaxmi Bank's Rights Issue
The bank issued a rights issue of Rs.21 a share, for which the subscription period was between January 8 and January 28, 2025. It was aimed at enhancing its capital base and overall financial resilience.
February 2025:
SEBI Extends Same-Day Settlement (T+0) for 500 Stocks
SEBI extended its voluntary same-day settlement (T+0) facility to the top 500 market-capitalization stocks from January 31, 2025. This move was to improve liquidity and transaction efficiency in the stock market.
How to Choose a Best Stock Brokerage Firm?
When choosing the best share brokerage firm, check for the reputation and background of this firm. Get a hold on their charges, including brokerage charges, commissions, etc. Low commissions and cheap brokerages may look inviting but consider quality over saving a few extra bucks in the long run.
A good stock brokerage agency should have customer services to assist all knowledge levels with queries, investing tips, and assessing corporate actions.
Everything About Corporate Actions and What is the Role of a Brokerage Firm?
The role of a brokerage agency or stockbroker for investors wishing to invest through stock exchanges is paramount. A stock and share brokerage firm facilitates the trading of stocks, which would otherwise have to be done by investors. Institutional stock brokers offer trading services to their clients and invest in large companies. Personal stockbrokers offer trading services, advice, and brokerage services to small companies, individual investors, and novice investors.
The brokerage firm or stockbroker would understand the technicalities involved in a corporate action and know how to respond. This includes having strong working experience in handling mandatory corporate action and responding to the company's voluntary corporate action.
Bonus Shares
An organization uses bonus issues to encourage new investors via their share market brokers, brokerage firms, or individually to purchase this organization's shares. It is done when the price per share of this company is too high that it doesn't entice new investors. By issuing bonus shares to existing shareholders, the free shares are allotted to shareholders, and the number of shares issued becomes larger.
When the number of shares issued increases, the price per share drops. This allows retail participation from new investors. Bonus shares are issued in the ratio of 1:1, 3:1, or 2:1. This means that a shareholder with one share will receive one extra, one share will receive three, and one share will receive two extra. Shareholders can use the services of stockbroker companies to understand these dynamics.
Rights Issue
An organization offering a rights issue allows its shareholders to purchase new or additional shares. Existing stockholders are given the privilege to purchase these shares before the public is given an opportunity to purchase the shares. Via their stockbroker companies, existing shareholders receive rights, which these securities are called. The rights entitle the shareholder to purchase the newly offered shares at a discounted price on a pre-determined future date.
A rights issue corporate action is taken by an organization to generate additional funds. It is done to generate quick funds, especially when quick funding is necessary.
Stock Split
Splitting stocks is the process of breaking per unit shares into smaller portions. Independent shareholders searching for a stockbroker near me or a sharebroker near me can use the services of a broker to understand this process.
It is a means to increase liquidity because it will allow the shares to be traded and generate cash flow. Smaller size shares will attract investors if the pre-split share price is too high. The split shares have their face values in proportion to their sizes.
For example, if an organization implements a stock split using the 1:10 ratio, every owned share is partitioned into ten shares, all new. The recalibrated face value of the share will be 1/10 of the price of the original per unit share price.
Dividends
A dividend is an income paid to stockholders from the company's profits or reserves. Many investors start searching for a stockbroker near me in their browser search engines, failing to understand dividend calculations.
Dividends can also be paid to shareholders via their share brokerage firms out of investment funds when the funds do not find a suitable opportunity for investment. The investment funds are generally the profits or reserves of the company.
A dividend is paid out as a percentage of the share's face value. Dividend income is taxed, and investors must pay capital gains tax. However, dividends received up to a certain threshold amount are not taxable. Like investors, even companies must pay taxes such as Dividend Distribution Tax. Share market brokers and brokerage firms will provide more information on these taxes.
Buyback of Shares
When companies want to have a majority stake in the firm, they offer a buyback of shares. Existing shareholders are given the option to sell their shares back to the company at a premium rate, which is higher than the market rate. A buyback of shares is usually done when a company's stock price is not moving or has been static for a long time. The company faces the risk of the existing shareholders selling their shares at a lower price to rid of their static shares. So to avoid this, the company buys back the shares.
Conclusion:
Corporate actions are sometimes tricky, and most investors use the services of a stock brokerage firm to assist them in making a decision. Crucial decisions relating to selling shares when a buyback offer is released or responding to voluntary action will require expert decision-making. So anyone searching for a share broker or stockbroker near me is doing the right thing.
Understanding mandatory corporate actions and corporations' choices is also critical to help protect one's wealth. Using the services of the best stockbroking firm will help shareholders and investors understand the impacts of corporate restructuring, corporate actions favouring shareholders, and actions that influence the stock price.
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Prudent Corporate Advisory Services Ltd.
Disclaimer: This blog is dedicated exclusively for educational purposes. Please note that the securities and investments mentioned here are provided for informative purposes only and should not be construed as recommendations. Kindly ensure thorough research prior to making any investment decisions. Participation in the securities market carries inherent risks, and it's important to carefully review all associated documents before committing to investments. Please be aware that the attainment of investment objectives is not guaranteed. It's important to note that the past performance of securities and instruments does not reliably predict future performance.
