With prices down more than 50% from the previous close, shares of HDFC Bank, the biggest private sector lender in India by market value, looked to plummet on Tuesday.

Key Highlights

• HDFC Bank shares plunged ~62% only due to 1:1 bonus share issuance adjusting stock price.
• No actual value loss: drop was a technical adjustment, not a reflection of financial deterioration.

However, the bank's financial difficulties were not the cause of the steep drop. The bank's 1:1bonus share issue was the cause of the technical adjustment, which took effect when the stock began trading ex-bonus on the NSE and BSE.

Each shareholder receives one extra equity share for each share they currently own under the bonus issue. This action raises the total number of shares in circulation, but it has no effect on the company's overall worth or investors' wealth. Rather, the increase in the number of shares is reflected in a proportionate adjustment to the stock price.

Also Read: HDFC Bank Bonus Issue Today: Record Date, Share Price Impact, History

Due to this adjustment, HDFC Bank's share price opened Tuesday more than 62% lower, trading between Rs 982.20 and Rs 986.30 as opposed to the closing price of about Rs 2,600 the day before. Although the decline appeared dramatic on stock market screens, it was solely a mathematical shift and did not indicate a decline in investor confidence or a deterioration in the bank's performance.