India is now the third-largest equity market in Asia, following China and Hong Kong. But what’s truly interesting here is that even the slightest corporate actions can significantly influence this massive market.
For better or worse, these companies play an imperative role in influencing prices in the stock market. This makes it very important to understand and evaluate the implications of these actions and make investment decisions accordingly.
In this blog, we will take a closer look at what these actions are all about and how they affect the market. So, make sure you read it till the end and start your journey as a successful investor.
What do Corporate Actions Mean?
Every company has a management or a board of directors that takes the initiative to promote the business’s interest in different scenarios. While private companies do follow the same structure, their decisions don’t influence the market greatly.
This becomes very different in the case of public companies with a wide range of shareholders.
Every decision they make, or initiative they make has a significant influence on the stock market since there are many stakeholders involved in the mix. These decisions and initiatives are what we know as corporate action in the stock market.
Different Major Types of Corporate Actions
Most people don’t realize this, but there are two different types of corporate actions in today’s world. These types include:
- Mandatory Corporate Actions: These are corporate actions that automatically affect every aspect of where the corporation’s investments are involved. Examples of such actions include changes in company name, acquisitions, and even stock splits.
- Voluntary Corporate Actions: These are corporate actions that the investor needs to act upon for it to make any impact. Some examples of voluntary corporate actions include tender offers, optional dividends, and even tender offers.
How Do Corporate Actions Affect Share Prices?
This should not come as much of a surprise, but different corporate actions have different impacts on share prices. The logic here is that the effect of these actions can vary based on several different factors, including the following:
Market Sentiment: Since investors invest in the market, their collective sentiment significantly influences stock prices. For instance, your corporate action might strike a favorable chord in a bullish market.
However, the opposite is also possible, where a corporate action BSE might touch a painful nerve in a bearish market.
Fundamentals of the Company: Another very important factor at play here is the overall prospect and health of the company. This determines how investors will react to corporate action, and if your company has robust fundamentals, it will most likely have a positive impact.
Expectations from the Market: The final influencing factor is the investor’s expectations from the market. If investors were already anticipating your corporate action it will likely have little to no effect on the market’s performance.
On the other hand, if you surprise them with a sudden corporate action, it might have a significant impact on the prices.
How Can You Navigate the Implications of Corporate Actions?
Undoubtedly, major decisions and initiatives like dividend corporate action can rock the boat to a great extent. But there are certain things you can do to navigate through these turbulent times, and these strategies include:
- Understand Your Investment Goals: The first thing you need to get clear is to have a clear idea of your investment goals. You must analyze if the corporate action aligns with your investment goals and act accordingly.
- Keep Yourself Informed: Accessing real-time information has never been as easy as it is today. This makes it very important that you remain updated with all the latest information and events.
- Evaluate Implications: Every corporate action has a certain degree of implication on the market. As an investor, it is your responsibility to analyze the potential effects of specific corporate actions on share prices and the market as a whole.
In Conclusion
You must understand that corporate actions are dynamic and complex when investing.
Investors must understand these actions and their effects on the market. This will help you make informed choices to maximize returns and minimize risks. The Research 360 app by Motilal Oswal will help you identify corporate actions in the stock market.