HDFC Bank share price plunges 50% as stock turns ex-bonus; here's why

HDFC Bank shares turned ex-bonus in the ratio of 1:1 on Tuesday, August 6. After adjusting for the bonus issue, the stock opened at Rs 982.20 on the BSE, flat. However, compared with Monday’s unadjusted closing price of Rs 1,964.50 on the BSE, the stock appeared down by 50 per cent. Market participants noted that some trading apps may still be displaying unadjusted prices, leading to the impression of a steep fall.

Since August 27 is the record date — with markets shut on account of Ganesh Chaturthi — HDFC Bank will determine eligible shareholders for the bonus issue tomorrow. The additional shares are expected to be credited to investor accounts shortly after.

With this move, India’s most valuable lender joins a growing list of BSE500 companies — including Nestle India, Bajaj Finance, Ashok Leyland, Samvardhana Motherson International, Container Corporation of India, Motherson Sumi Wiring, Anand Rathi Wealth, Indraprastha Gas, and Garware Technical Fibres — that have announced bonus issues this year. Investors often appreciate bonus shares as they are issued free of cost, with the same face value as existing stock, funded out of free reserves.

The impact of a bonus issue is straightforward: it increases the number of outstanding shares, trims free reserves, and lowers earnings per share (EPS), prompting a downward adjustment in share price.

It is important to distinguish between a bonus issue and a stock split. While both increase the number of shares, their objectives differ. A bonus issue rewards shareholders by distributing free shares from accumulated earnings without altering face value. A stock split, on the other hand, divides existing shares into smaller units to improve liquidity, reducing the face value. For example, in a 1:5 split, each share is divided into five, and dividend entitlement per share adjusts accordingly. In a bonus issue, dividend entitlement per share remains intact.

On fundamentals, HDFC Bank remains on solid ground. Last week, S&P Global Ratings said it expects the bank to maintain its strong market position, capitalisation, and low credit costs over the next two years.