Patanjali Foods stock opened 66.7 per cent lower on Thursday from its previous day's close of Rs 1,800 per share. Today, it opened in the Rs 600 range. But why is no one worried?
This is a classic case of how stock charts don't know the full picture. This time, the price per share tumbled because of a 2:1 bonus share issue.
Simply put, each shareholder who held 1 share, now holds 3 shares at one-third value each. In effect, this massive drop in stock price did not affect the company's market capitalisation or shareholder wealth.
For Patanjali, the technical price adjustment happened as the stock turned ex-bonus following the company's 2:1 bonus share issue.
Imagine you earned a share worth Rs 1,800 before the bonus issue. Now, you hold three shares worth Rs 600 each. Basic mathematics.
In fact, bonus issues are usually positive. This means the company is confident about future prospects and wants to attract more public investors.
Patanjali stock performance
After the price adjustment, on the BSE, Patanjali Foods stock closed at Rs 600.15 apiece yesterday. Today, it is trading down—but only by as low as 1.8 per cent! That's just usual market movement.
However, even with the new 2:1 bonus issue factored in, the shares have slumped a little over 6.5 per cent over the past one year. Patanjali is now valued at around Rs 214.8 billion.