HDFC AMC bonus shares explained: Stock price may fall 50% today; here's why

HDFC Asset Management Company (HDFC AMC) is set to turn ex-date for its bonus issue on Wednesday, marking another significant corporate action in 2025. With this, the mutual fund house joined Patanjali Foods, Fineotex Chemical, Shilpa Medicare, HDFC Bank, Bajaj Finance, Ashok Leyland, Samvardhana Motherson International, Nestle India, Container Corporation of India, Motherson Sumi Wiring, Anand Rathi Wealth, Indraprastha Gas and Garware Technical Fibres — all of which carried out bonus issues this year.

HDFC AMC declared a 1:1 bonus issue, offering one additional share for every share held. Its stock settled at Rs 5,339.50 on the NSE on Tuesday. When the stock market kicks off today, the price will automatically adjust in line with the bonus. Some trading apps may display this as a sudden 50 per cent drop, though investors may have little reason to worry. The decline would purely be optical, with investor holdings doubling on account of the fresh issuance. There is no dilution of equity.

A bonus issue increases the number of shares in circulation, reduces free reserves and lowers earnings per share (EPS). Consequently, the stock price adjusts downward. The total number of securities proposed to be issued by HDFC AMC stood at 21,40,03,751. The bonus shares would be issued out of the company’s Capital Redemption Reserve Account and Securities Premium Account as at September 30.

HDFC AMC’s authorised share capital (pre-bonus) stood at Rs 3,50,00,00,000, divided into 60,00,00,000 equity shares of Rs 5 each and 5,00,00,000 redeemable cumulative non-convertible preference shares of Rs 10 each.

Its issued, subscribed and paid-up capital comprised 21,40,03,751 equity shares of Rs 5 each, aggregating to Rs 107,00,18,755.

Post-bonus, the authorised capital remained unchanged. The issued, subscribed and paid-up capital rose to 42,80,07,502 equity shares of Rs 5 each, aggregating to Rs 214,00,37,510. The figures remain subject to change pursuant to the exercise of employee stock options, with the actual number of bonus shares dependent on fully paid-up equity shares as of the record date.

While bonus issues and stock splits may seem similar, their intent differs. A bonus issue rewards shareholders with free shares funded from accumulated earnings, without altering the face value. A stock split divides existing shares into smaller units to enhance liquidity, thereby reducing the face value. For instance, in a 1:5 split, each share is split into five and dividend entitlement shrinks proportionately. In a bonus issue, however, dividend entitlement remains unchanged.