RITES shares rise 8% but why railway PSU stock may be showing 48% slide

Despite this positive momentum, many investors were caught off guard, seeing what appeared to be a 48% slide in the stock price on their trading apps.

In Short

• RITES shares surged sharply after bonus and dividend announcement
• The drop in shares was due to price adjustment after bonus issue
• RITES shares, which had closed at Rs 682.45, opened lower at Rs 362.95

Shares of RITES Ltd, the state-owned railway PSU, rallied sharply during Friday’s trading session, hitting a day’s high of Rs 383.35 on the Bmbay Stock Exchange (BSE). At 10:45 am, the shares of the railway PSU were up 7.43% at Rs 363.90.

The surge came as the stock began trading on an ex-dividend and ex-bonus basis, following the company’s 1:1 bonus share issue and a final dividend of Rs 5 per share, both announced earlier this year.

Despite this positive momentum, many investors were caught off guard, seeing what appeared to be a 48% slide in the stock price on their trading apps.

This significant drop, however, was purely due to price adjustments post the bonus issue.

RITES shares, which had closed at Rs 682.45 on Thursday, opened lower at Rs 362.95 on Friday as the bonus issue effectively halved the share price in line with the 1:1 ratio.

The bonus issue, which grants shareholders one additional share for every share held, increases the number of outstanding shares while proportionally reducing the share price.

As a result, investors witnessing the unadjusted price may have been alarmed by the seeming 48% dip, but on an adjusted basis, the stock actually rose 8%, reaching an intra-day high of Rs 362.45.

Bonus issues, like the one from RITES, are often used to improve liquidity by making shares more affordable, though they also reduce a company’s reserves.

RITES is no stranger to bonus issues, having also turned ex-bonus in August this year with a 1:4 ratio. The current 1:1 bonus issue further highlights the company’s shareholder-friendly stance.

RITES has delivered strong returns, up 46.17% in the past year, and continues to perform well technically, with its stock trading above key moving averages.

Alongside RITES, several other companies also turned ex-date for their bonus issues today, including Phoenix Mills, Axita Cotton, MINDTECK (India), and Ujaas Energy. These stocks saw upward momentum, with Axita Cotton soaring 6.10% post its 1:3 bonus issue.

For RITES shareholders, the eligibility for both the bonus shares and the Rs 5 dividend is determined by today’s record date, with dividends expected to be paid by October 12.

While the price adjustment may have caused confusion for some investors, RITES continues to maintain its strong position as a multi-disciplinary engineering and consultancy firm in the transport infrastructure sector, particularly in the railway industry.