Corporate Actions India

Corporate Actions (India)

Getting a corporate action wrong silently corrupts every downstream number — returns, CAGR, valuation multiples, backtests. This skill is the adjustment maths and the decision rules.

Date vocabulary

T+1 matters: to be eligible, you must buy on or before the day preceding the ex-date. Anyone still using the old T+2 rule of thumb will be one day wrong.

Bonus issue

A capitalisation of reserves. No cash changes hands, no economic value is created.

Bonus ratio a:b  → for every b shares held, a new shares received
New share count  = old × (a + b) / b
Adjustment factor = b / (a + b)
Adjusted historical price = price × b / (a + b)

Example, 1:1 bonus: share count doubles, every historical price is halved, EPS halves, market cap unchanged.

• Cost of acquisition of bonus shares is nil; the holding period runs from the date of allotment of the bonus shares, not the original shares. This matters for LTCG/STCG classification — see capital-gains-tax-india.
• Bonus shares are not income. Anyone describing a bonus as a "reward" is describing a haircut in the share price.

Stock split

A change in face value. Same economics as a bonus, different accounting.

Split 1 share of FV ₹10 → 5 shares of FV ₹2
Adjustment factor = new FV / old FV = 2/10 = 0.2
Adjusted historical price = price × 0.2

Cost of acquisition is apportioned; holding period is preserved from the original purchase — unlike a bonus.

Rights issue

Existing shareholders get the right to subscribe to new shares at a discount, pro rata.

Rights ratio a:b at price P, cum-rights price C

Theoretical Ex-Rights Price (TERP) = (b×C + a×P) / (a + b)
Value of one right                 = C − TERP
Adjustment factor for history      = TERP / C

Worked example: 1:4 rights at ₹100, cum-rights price ₹200. TERP = (4×200 + 1×100) / 5 = ₹180. Value of one right = ₹20. Historical prices multiply by 0.9.

Decision rules:

• Not subscribing is not neutral — you are diluted. Sell the rights entitlement (REs trade separately on NSE/BSE during the renunciation window) or your economic loss is real.
• Rights entitlements that are neither exercised nor sold lapse worthless.
• A deeply discounted rights issue from a leveraged company is a recapitalisation. Ask why equity is being raised at a discount rather than debt.
• Sale of rights entitlements is itself a taxable capital gain, with nil cost of acquisition.

Buyback

Two routes, materially different for shareholders:

Tender offer (proportionate)

Acceptance ratio ≈ shares reserved for the category / shares tendered in the category

• 15% of the buyback size is reserved for small shareholders (holding up to ₹2 lakh of shares as at the record date). Acceptance ratios for small shareholders are usually far higher than for the general category, which is why holding just under ₹2 lakh before a record date is a known arbitrage.
• Compute the blended outcome: (accepted × buyback price) + (unaccepted × post-buyback market price) versus simply selling in the market today.

Open market (through the stock exchange)

• No entitlement, no record date, no acceptance ratio. The company simply buys. Treat it as ongoing demand, not as a distribution to you.

Taxation — this changed: for buybacks on or after 1 October 2024, the buyback proceeds are taxed in the hands of the shareholder as a deemed dividend at slab rates, and the cost of acquisition of the tendered shares is treated as a capital loss available for set-off. The earlier regime, in which the company paid buyback distribution tax and the receipt was exempt for shareholders, no longer applies. Confirm the current position before advising — see capital-gains-tax-india.

Dividend

• Taxable in the shareholder's hands at slab rates since FY 2020-21. TDS applies above the prescribed threshold in a financial year.
• The stock drops by roughly the dividend on the ex-date. A "high dividend yield" is not free money.
• For a total return series, reinvest the dividend at the ex-date close. For a price return series, do not adjust. State which you are using — mixing them is the most common error in Indian backtests.

Demerger

Assets and liabilities move to a resulting company; shareholders receive shares in the resulting entity in a defined ratio.

• The cost of acquisition is apportioned between the demerged and resulting company in the ratio of net book value of assets transferred to the net worth of the demerged company immediately before the demerger. The company issues this ratio; use the company's own disclosure.
• The holding period of the resulting company's shares includes the holding period of the original shares.
• Price history requires a splice, not a factor. There is no clean single adjustment — document the methodology.
• Watch the pre-listing period: resulting-company shares are often credited weeks before they list, during which the position is illiquid.

Merger / amalgamation

• Swap ratio determines new shares. Cost and holding period carry over.
• The scheme is approved by NCLT; read the scheme document for the appointed date versus the effective date — the accounting and the record date can be months apart.

Delisting

• Reverse book building: shareholders bid, and the acquirer must accept at the discovered price for the offer to succeed, subject to the acquirer reaching the threshold prescribed under SEBI's delisting regulations.
• If you do not tender, you hold an unlisted share with an exit window afterwards, then illiquidity. State this risk plainly.

Building an adjusted price series

Apply factors cumulatively and backwards from today:

# factors: list of (ex_date, factor) sorted descending by date
adj = 1.0
for date in reversed(price_series.index):
    for ex_date, factor in factors:
        if date < ex_date:
            adj *= factor      # apply once, when crossing the ex-date going back
    adjusted[date] = price[date] * adj

Checks that catch nearly every bug:

• A 1:1 bonus should produce an exactly 50% step in raw prices and no step in adjusted prices
• Adjusted price on the most recent date must equal the raw price
• Volume adjusts by the inverse of the price factor

Hard rules

• Always name the record date and the ratio when describing an action.
• Never mix adjusted and unadjusted series in one calculation. Say which you used.
• Tax treatment changes with each Finance Act, and the Income-tax Act 2025 applies from 1 April 2026. Verify current provisions before stating a tax outcome, and tell the user to confirm with a qualified tax adviser.
• This is mechanics and information, not investment or tax advice.