A stock’s displayed price usually falls after a bonus issue because the company has increased the number of shares while the company’s total equity value has not mechanically increased at that instant. More shares represent the same value, so the reference price per share is divided by the bonus adjustment factor. The lower quote does not, by itself, mean that an investor has lost the same percentage of wealth: the investor also owns additional shares.
What changes in a bonus issue
A bonus issue gives eligible shareholders additional shares without requiring them to pay the company for each bonus share. The entitlement is expressed as a ratio: A bonus shares for every B existing shares. A 1:1 issue means one additional share for each share already held; a 2:1 issue means two additional shares for each existing share.
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Immediately before the adjustment, a shareholder’s holding value can be represented as:
number of existing shares × pre-bonus price per share
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After the bonus, the shareholder has more shares. If the company’s overall equity value were unchanged at the instant of the adjustment, that same value would be spread across the larger share count. The exchange therefore uses a mechanically adjusted reference price. Trading after the ex-bonus date can move the quote above or below that illustration.
The bonus-price formula
For a ratio of A:B, where A is the number of bonus shares and B is the number of existing shares, the educational adjustment factor is:
Adjustment factor = (A + B) ÷ B
The illustrative ex-bonus price is:
Illustrative adjusted price = pre-bonus price ÷ adjustment factor
This is the formula shown in the Securities and Exchange Board of India (SEBI) investor presentation Corporate Action – Dividends, Bonus, Splits etc. (February 2025). It is a proportional calculation, not a promise about the price at which the stock will actually trade.
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Why the factor adds the original shares
Each block of B old shares becomes A + B shares after the issue: the B original shares remain and A bonus shares are added. The share count therefore grows by the factor (A+B)/B. Dividing the old reference price by that factor keeps the block’s illustrative aggregate value unchanged.
Worked examples
| Bonus ratio | Shares for each old share | Adjustment factor | Illustrative price if the old price is ₹100 |
|---|---|---|---|
| 1:1 | 1 additional for every 1 held | (1+1)/1 = 2 | ₹100 ÷ 2 = ₹50 |
| 2:1 | 2 additional for every 1 held | (2+1)/1 = 3 | ₹100 ÷ 3 = ₹33.33, before any market movement or applicable rounding |
| 3:2 | 3 additional for every 2 held | (3+2)/2 = 2.5 | ₹100 ÷ 2.5 = ₹40 |
The ratio is always read as “bonus shares for every existing shares.” Do not read 2:1 as two total shares; it means two new shares in addition to each one existing share.
SEBI’s ₹15 example
SEBI’s February 2025 presentation uses a pre-bonus market price of ₹15 and a 2:1 bonus ratio. The factor is (2+1)/1 = 3. Dividing ₹15 by 3 gives an illustrative adjusted price of ₹5 per share. The presentation labels this a post-bonus market-price impact example; it is not a statistic about how stocks generally perform.
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Consider an investor holding 100 shares at ₹100 before a 1:1 bonus. The holding is worth ₹10,000 immediately before the mechanical adjustment. The investor receives 100 additional shares and now has 200 shares. The illustrative adjusted price is ₹50, so the same 200-share holding is also represented as ₹10,000.
| Before adjustment | After mechanical adjustment | |
|---|---|---|
| Shares held | 100 | 200 |
| Reference price | ₹100 | ₹50 |
| Illustrative holding value | ₹10,000 | ₹10,000 |
This example isolates the corporate-action arithmetic. Once trading begins, buyers and sellers may price the company differently because of earnings expectations, broader market conditions, liquidity, news and other factors. The traded price can therefore be higher or lower than the formula’s illustration. It is incorrect to attribute every move on or after the ex-bonus date solely to the bonus.
How to calculate an ex-bonus price yourself
- Read the ratio convention. Identify A, the bonus shares, and B, the existing shares. For “2:1,” use A = 2 and B = 1.
- Calculate the factor. Add A and B, then divide by B:
(A+B)/B. - Take the relevant pre-bonus reference price. Use the price specified by the exchange or corporate-action notice for the adjustment. A live quote from an unrelated time may not be the correct input.
- Divide the pre-bonus price by the factor. Keep enough decimal places for your calculation, then apply the market’s quotation or tick-size rules where relevant.
- Recalculate the position value. Multiply the adjusted share count by the illustrative adjusted price. This checks that the mechanical change has not been mistaken for an immediate gain or loss.
- Separate the illustration from trading. After the ex-bonus date, compare the actual quote with the adjusted reference, not with the unadjusted old price.
What “ex-bonus” means for a shareholder
The ex-bonus date marks the point used by the market to distinguish trading with the entitlement from trading without it, subject to the applicable exchange and company timetable. Record dates, allotment dates and the date on which shares appear in an account can differ by issue and jurisdiction. This article does not provide a company-specific timetable; investors should read the company’s current notice and the relevant exchange announcement.
Eligibility, crediting and treatment of any non-whole-number entitlement can depend on the issue terms and local procedure. Check the individual corporate-action document rather than assuming that every issuer handles those details identically.
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Mechanical adjustment versus actual market movement
| Concept | What determines it | What it tells you |
|---|---|---|
| Mechanical adjustment | The announced A:B ratio and the pre-bonus reference price | The proportional price level that represents the larger share count, assuming unchanged aggregate value at the instant of adjustment |
| Actual market price | Orders, expectations, company news, market conditions and liquidity after trading starts | The price at which transactions occur; it may differ from the mechanical illustration |
A headline saying that a stock “fell” after a bonus can be misleading if it compares the new quote with the old, unadjusted quote. The meaningful question is whether the investor’s total position, measured with the additional shares and the actual market price, changed after allowing for ordinary market movement.
Bonus issue versus a stock split
Both actions can lower the quoted price per share by increasing the number of units into which the company’s equity is divided, but they are not the same corporate action. A bonus issue distributes additional shares from eligible reserves under the issuer’s rules. A split changes the denomination or face structure of existing shares. The ratio arithmetic for a particular bonus must come from that company’s announcement; do not substitute a split ratio or assume that terminology used in one market applies everywhere.
SEBI’s February 2025 investor presentation discusses dividends, bonus issues and splits as separate corporate actions. Their legal requirements, dates and accounting treatment should be checked under the rules of the market where the security is listed.
What changes in derivatives contracts
The underlying-share calculation is not the whole story for futures and options. SEBI’s Chapter 14: Exchange Traded Derivatives (2023) describes corporate-action adjustments to derivative contracts. In that context, the adjustment factor is applied to contract features so that the economic value of an existing position is treated consistently through the bonus.
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| Derivative feature | How the SEBI material describes the adjustment |
|---|---|
| Strike price | The new strike price is arrived at by dividing the old strike price by the adjustment factor. |
| Market lot or multiplier | The lot or multiplier is adjusted using the bonus adjustment methodology. |
| Position | The contract position is adjusted so the corporate action does not create an unintended economic transfer solely because the share count changed. |
These are exchange and contract-rule matters, not instructions to alter a retail shareholding manually. A derivatives trader should use the current circular and contract specifications for the relevant exchange, expiry and instrument. The rules can differ outside India.
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India-specific points and limits
SEBI’s investor material states that a bonus issue is made from eligible reserves and is not issued in lieu of a dividend. That statement describes the Indian regulatory context. Eligibility of reserves, approvals, record-date procedures and other compliance requirements are jurisdiction-specific and can change; current regulations and the issuer’s notice should be checked before relying on them for a legal or compliance decision.
The formula itself is general proportional arithmetic, but the surrounding implementation is not universal. Tax treatment, settlement timing, account crediting and derivatives adjustments must be verified for the country, exchange and security involved. No single ex-date, record date or credit timeline applies to every company.
Common mistakes when reading the price chart
- Calling the adjustment a crash. A lower per-share quote can be the expected division caused by the larger share count.
- Ignoring the ratio’s direction. “A:B” means A new shares for B old shares; reversing the numbers produces the wrong factor.
- Using the old price as a permanent benchmark. Compare post-bonus trading with an adjusted reference, then account for subsequent market moves.
- Treating the formula as a forecast. It preserves proportional arithmetic; it does not predict demand, earnings or the next traded price.
- Assuming the same process worldwide. Corporate-action dates, reserve rules, settlement and derivative procedures depend on the jurisdiction and exchange.
- Changing a derivatives position by guesswork. Contract adjustments should come from the exchange’s current notice, including the applicable lot and strike changes.
A practical checklist for an announced bonus
- Confirm the exact A:B ratio in the company and exchange announcement.
- Locate the stated record date, ex-bonus date and allotment or credit information.
- Calculate
(A+B)/Band divide the appropriate pre-bonus reference price by that factor. - Multiply the adjusted share count by the illustrative price to understand the mechanical value relationship.
- After trading starts, distinguish the formula effect from ordinary price discovery.
- If you hold futures or options, read the exchange’s corporate-action adjustment notice for strike, lot or multiplier and position changes.
- For tax, legal or compliance questions, obtain current guidance for the relevant jurisdiction rather than relying on a general example.
The key takeaway
A bonus issue increases the number of shares. With the company’s aggregate equity value held constant for the instant of adjustment, the per-share reference price falls by the factor (A+B)/B. A 1:1 bonus therefore halves the illustrative price, while SEBI’s 2:1 example divides ₹15 by three to produce ₹5. Those figures describe mechanical adjustment, not guaranteed market prices or investment returns. Actual value after the ex-bonus date depends on the number of shares held and the price at which the market trades them.
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