The line that expires in your account

On Monday morning the top-gainers list on your platform has a name you own sitting near the top, up sixty-three per cent. Your own holding in it is up about two. The number is not an error and you are not looking at the wrong company: what has moved sixty-three per cent is a separate security with its own ISIN, credited to your demat account last week without your doing anything, trading in its own series for a handful of days and then never again. Its value is not a matter of demand. It is one subtraction, done in public, and if you neither sell it nor act on it by the stated day it becomes worth exactly zero while remaining visible in your holdings for a while afterwards.

The company is doing a rights issue. The Rights entitlement is the tradeable right to subscribe to it, and since SEBI overhauled the process the entitlement arrives dematerialised and is renounced by transferring it — normally by selling it on the exchange — rather than by signing a form. So for a few days one company has more than one line trading against its name, each with a different price, a different history and a different reason for existing — and screeners, gainer lists and scans do not know the difference unless you tell them.

Think of it like this

The allotment letter you may transfer until Friday

A housing board scheme allots you the right to buy a plot at ₹15 lakh. Comparable plots are changing hands at ₹19 lakh. The letter is transferable, but only until Friday, and only to somebody who will then have to find the ₹15 lakh themselves and wait months for possession. What is the letter worth? Around ₹4 lakh, less something for the wait and the paperwork and the fact that very few people can produce ₹15 lakh by Friday. What is it worth on Saturday if you have done nothing at all? Nothing. It is a piece of paper that referred to a deadline that has passed.

In the market

That is the entitlement exactly. Its value is the gap between what the share is worth and what you must still pay for it, discounted a little for the wait and the trouble. Its life is measured in trading days. And the outcome for a holder who ignores it is not a smaller gain — it is zero, on an instrument that was worth real money on the Friday.

One company, three lines

The line	What decides its price	How long it exists
The ordinary share	Everything you already know about. On the ex-rights date its price steps down by arithmetic, because the entitlement it carried has separated from it	Indefinitely
The rights entitlement	The share price minus the issue price you must still pay, less a discount for the wait and the friction. It is credited automatically to holders on the Record date	A defined window of a few trading days, closing before the issue itself closes
A partly paid share, where the issue is structured that way	Roughly the fully paid price minus the money still owed on later calls. It is a separate listed line with its own symbol and ISIN, and it is usually thinly traded — Partly paid shares have their own treatment in this track	Until the calls are met and it converts into the fully paid share

The value is a subtraction

The anchor here is not a maturity amount or a published rate. It is the price of the share the entitlement lets you buy, minus what you will pay for it. And because the share’s own price steps down when the entitlement separates from it, the right number to subtract from is the Theoretical ex-rights price rather than the price the share was at before.

TERP = (held × cum-rights price + new × issue price) ÷ (held + new)

held: shares you must hold to get one new share — the 4 in a 1-for-4 issue
new: new shares that entitles you to — the 1
cum-rights price: the share price before the entitlement separates from it

Example: A 1-for-4 issue at ₹150 with the share at ₹200: (4 × 200 + 1 × 150) ÷ 5 = 950 ÷ 5 = ₹190. The entitlement is then worth about ₹190 − ₹150 = ₹40, and the share’s own chart has a genuine ₹10 step in it on the ex-rights date that no seller caused.

Worked example

Three hundred entitlements, six days, and what the discount buys

You hold 1,200 shares at ₹200; a 1-for-4 rights issue is priced at ₹150

What lands in your accountOne for every four shares held on the record date, each being the right to subscribe to one new share at ₹150300 entitlements

The share, ex-rightsThe theoretical ex-rights price. On your platform this may appear as an unexplained ₹10 gap in the history, because a rights adjustment is not handled the way a split isAbout ₹190

What each entitlement is worth by subtraction₹12,000 across the 300 — sitting in your account, on a security you did not buy and may not have noticed₹190 − ₹150 = ₹40

What it actually trades atA tenth below the subtraction, and the discount is not a mispricing: the buyer must find ₹150 now, wait weeks for allotment and listing, and carry the share’s risk throughout without being able to sell it₹36

The buyer’s effective costFor a share worth about ₹190 — roughly two per cent below the market, which is the payment for the wait and the trouble rather than free money₹36 + ₹150 = ₹186

If the share moves 5% up while the window is openThe share moved 5% and the entitlement moved 23.75%. The gearing is the share price divided by the entitlement’s value — ₹190 ÷ ₹40, about 4.75 times₹199.50, and the entitlement is worth ₹49.50

If instead the share falls to ₹152The share fell 20% and the entitlement fell 95%. It cannot go below zero, and it does not need toThe entitlement is worth about ₹2

If you do nothing at allThe window closes, the entitlement lapses, and the ₹12,000 goes to nobody. Your holding in the company is diluted by the shares issued to everybody who did act₹0

Every number above comes out of one subtraction and the issue terms, which is what makes this the most anchored series in the module — and the most dangerous to read as a chart. A sixty-three per cent day on the entitlement is a thirteen per cent day on the share, and a ninety-five per cent fall is a twenty per cent fall. Any indicator that works in percentages is reading the gearing rather than the market, and any level drawn on six days of history is drawn on nothing. The one thing on this chart worth measuring is the gap between the traded price and the subtraction, because that gap is the price of the wait and it is the only part of the line that carries information.

It is a call option struck at the issue price

Name the structure and its behaviour stops being surprising. The entitlement is a right to buy at a fixed price for a few days, so it is a short-dated call whose strike is the issue price. Where the issue is priced well below the market it is deeply in the money and moves almost linearly with the share, geared by the ratio of the two prices. As the share approaches the issue price the Moneyness changes, the gearing becomes extreme and the value becomes mostly probability — and below the issue price the subtraction is negative, which cannot happen, so the entitlement trades on whatever chance remains of the share recovering before the window shuts. Unlike the option premium charted earlier in this track there is almost no time value to disentangle in the ordinary case, and the deadline behaves differently in the one respect that costs money: an option that finishes in the money is settled or assigned for you whether or not you do anything, while an entitlement that is deeply in the money is worth nothing the following morning unless you sold it or applied and paid. The value being obvious is no protection at all. One consequence to carry back to the opening paragraph: gearing is not a fixed property of these instruments but the share price divided by the entitlement’s value, so it is about five times where the issue is priced a quarter below the market and thirty times where the issue price sits close to it. Sixty-three per cent on the entitlement is a thirteen per cent day on the share in the first case and a two per cent day in the second, and only the issue terms tell you which chart you are looking at.

Careful

The chart’s last print is not the terminal value, and this is the specific way people lose the whole of it. The entitlement stops trading on a stated day, some days before the issue itself closes. Once the transfer routes in the letter of offer have closed it cannot be sold at all — it can only be used, by applying for the shares and paying the issue price. So the series ends at ₹36 and the holder who did nothing ends at nil. An earlier lesson in this track covered charts that end because trading in a security stopped; this is the other kind, where the ending is scheduled, published at the outset, and takes the instrument’s value with it. Holders discovering the line only after the window has shut is a routine occurrence rather than a rarity, and an unread notice — a demat record carrying an email address nobody uses any more — is a common enough route to it that checking the contact details on the account is part of holding shares.

What it does to the tools you already run

Gainer and loser lists become useless for a few days. Entitlements routinely print moves of tens of per cent, so they colonise the top and the bottom of any percentage-ranked list. Filtering by series removes them in one step; not filtering produces a watchlist of instruments you cannot hold for more than a week.
A scanner with no minimum-history rule will report signals on six bars. Fifty-day averages, fifty-two week highs and volatility measures all compute happily on an entitlement, using whatever data exists, under labels describing a window that does not. The remedy is a minimum-history filter on the screen rather than a longer look at the chart.
Percentage-based indicators read the gearing. An oscillator on an entitlement is measuring the ratio between two prices, not the enthusiasm of participants. Two entitlements on identically behaving shares will have completely different oscillator readings if their issue prices differ.
The share’s own history gets a step in it. The ex-rights adjustment is real and, depending on the platform, may not be applied to the historical series at all. So a gap rule, a support level or a backtest running across that date is transacting on an arithmetic step. The adjusted-price lesson earlier in this track is the place that problem is dealt with properly.
Volume on an entitlement is not participation in the company. It is the count of holders who decided not to subscribe, meeting the count of buyers who wanted a slightly cheaper route in. That is a real and interesting fact, and it is not what a volume-confirmation rule was written to measure.

In the Indian market

Two details of the Indian process that decide outcomes. Renouncing is now a transfer of a dematerialised security rather than a signature on a form: normally you sell the entitlement through your broker like any other line in the account, and where you mean to pass it to a particular person instead, the letter of offer provides for an off-market transfer to their demat account. The second detail is that these routes shut before the issue does. A letter of offer prints a separate last date for on-market renunciation, for off-market renunciation and for the issue itself, and the selling routes close first — so a holder who plans around the issue closing date, which is the date the headlines quote, may find the line already untradeable with only the application route left.

Loading interactive demo…

Work the rights case until the ex-rights price stops being surprising. The lab prints that adjusted price, and the cash it makes you pay in divided by the new shares is the issue price — the two ends of the subtraction that the entitlement is worth.

◆ Your call

A line you did not buy, and six days on the clock

Three hundred entitlements have appeared in your demat account. The share is ex-rights at about ₹190, the issue price is ₹150, and the entitlements are trading at ₹36 against a subtraction of ₹40. You do not want to put more money into this company. There are six trading days left in the entitlement window.

Check yourself

A 1-for-5 rights issue is priced at ₹120 while the share trades at ₹180 cum-rights. What is the entitlement worth by subtraction, and what should a chart reader make of a 40% single-day move in it?

◆ Checkpoint

Module checkpoint: when the price is tied to a number

5 questions. Answers are revealed once you submit all of them.

1.A listed NCD with three years to maturity trades at ₹1,046 against a face value of ₹1,000, and the market yield on comparable paper stays exactly where it is for the next year. What does the chart do?

2.A REIT’s price chart shows ₹300 becoming ₹330 over five years while it paid ₹6 a quarter throughout. Which statement about the statistics computed on that price series is correct?

3.A gold bond tranche has traded 3% below the value of the gold it is denominated in for the past several months. What does that persistent gap tell you?

4.A 1-for-4 rights issue is priced at ₹150 with the share at ₹200 cum-rights, and 300 entitlements are credited to your account. You do not want to subscribe and you take no action at all. What happens?

5.What do a discount bond, a REIT, a gold bond tranche and a rights entitlement have in common that a share does not, and what follows for a technical toolkit?

0 of 5 answered

Simple bhasha mein

Shukravaar tak transfer ho sakta hai

Housing board ne aapko ₹15 lakh mein plot khareedne ka haq diya hai, jab waise plot ₹19 lakh mein bik rahe hain. Letter transfer ho sakta hai — par sirf shukravaar tak, aur lene waale ko ₹15 lakh khud dena padega aur mahinon possession ka intezaar karna padega. Letter ka daam? Lagbhag ₹4 lakh, thoda kam — intezaar, kaagaz aur is baat ke liye ki shukravaar tak ₹15 lakh nikaalne waale bahut kam hain. Aur shanivaar ko, kuch na karne pe? Zero. Rights entitlement isi ka naam hai. Ginti: 1,200 share hain, 1:4 rights ₹150 pe, share ₹200. Aapke khaate mein 300 entitlement aa jaate hain. Ex-rights daam = (4 × 200 + 1 × 150) ÷ 5 = ₹190. Toh ek entitlement ki keemat ghatane se ₹190 − ₹150 = ₹40, yaani 300 pe ₹12,000 — ek security pe jo aapne khareedi hi nahi. Bazaar mein woh ₹36 pe chalta hai, aur woh ₹4 mispricing nahi hai: kharidaar ko abhi ₹150 dena hai, hafton allotment ka wait karna hai, aur us beech share ka risk uthana hai bina bech paane ke. Uska effective daam ₹186, share ₹190 ka. Gearing = 190 ÷ 40 = 4.75 guna. Share 5% badhe (₹199.50) toh entitlement ₹49.50 — +23.75%. Share ₹152 pe gire (−20%) toh entitlement ₹2 — −95%, aur zero se neeche ja hi nahi sakta. Isiliye top-gainer list mein "+63%" wala naam aapka share nahi, yeh doosri line hai: 63% iska matlab share pe 13%. Sabse mehnga hissa aakhir mein: entitlement ka trading issue band hone se pehle band ho jaata hai. Chart ka aakhri print ₹36 ho sakta hai, aur jo kuch nahi karta uska nateeja ₹0 — kyunki bechna ho toh apni series mein order dalna padta hai, aur lena ho toh apply karke ₹150 bharna padta hai. Har jagah "kuch na karo" sabse safe jawab hota hai; yahan wahi ek jawab hai jismein poora paisa pakka jaata hai.

What to remember

A rights entitlement is a separate security with its own ISIN and series, credited automatically, trading for a few days, and worth the ex-rights price minus the issue price.
The subtraction is from the theoretical ex-rights price, and the gearing — share price divided by the entitlement’s value — is why a 40% day on the entitlement can be a 12% day on the share, or a 2% one, depending entirely on the issue terms.
It is a short-dated call struck at the issue price: nearly linear when deeply in the money, mostly probability near it, and floored at zero.
The last print is not the terminal value. Selling closes before the issue does, and a holder who does nothing ends at nil rather than at the last traded price.
Filter your screens by series and enforce a minimum history, or entitlements and partly paid lines will colonise every percentage-ranked list you run.

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