Put two five-year charts side by side. Both start at ₹400, both wander, both finish at ₹400. Read as price series they are the same story, and any indicator you like will say the same thing about each. The first company financed itself out of its own cash flow and has exactly the number of shares it had five years ago. The second issued shares four times along the way — a placement, a preferential allotment to its promoters, a tranche of warrants converted, and an employee pool — and now has sixty per cent more of them. A holder of the first owns what they always owned. A holder of the second owns a much smaller slice of a much larger company. Nothing in the chart, and nothing computed from it, distinguishes the two.
A builder has been quoting ₹6,200 a square foot for two years and is proud of holding his price. What he does not mention is that the two-bedroom flat he was selling at that rate was 1,100 square feet and the one he is selling now is 950. The rate is honest, unchanged and public. It is also not the number that decides what you get, and the number that does is written somewhere else.
A share price is a rate — rupees per share. What you own is the rate multiplied by how much of the company one share represents, and that second part is on a quarterly filing rather than on the chart. A price that has not moved in two years is a statement about the rate and nothing else.
One identity, and the chart shows one factor of it
- Price per share
- The only one of the three the chart plots, and the only one that updates every second
- Shares outstanding
- Changed by corporate action rather than by trading. Published in the quarterly shareholding pattern and in the accounts
- Market capitalisation
- What the market says the whole company is worth. It is the product of the other two, so a chart that draws one factor in enormous detail and the other not at all cannot tell you what happened to it
Example: A stock “back to its 2021 level” is a statement about the first factor alone. Whether the company is back to its 2021 valuation depends on the second, and whether you are back to where you were depends on both.
Two kinds of change, and only one of them is adjusted
The mechanics module dealt with splits and bonuses, where the chart must be restated because the price fell by arithmetic and no holder lost anything. That is a division: the same claim cut into more pieces, every existing holder receiving their share of the new pieces. This lesson is about the other kind — an issuance, where new shares are created and sold or granted to somebody, so the pieces multiply and yours does not. Issuances are not adjusted for, and should not be, because the price after one is a genuine price of a genuinely different company. The consequence is that the chart runs through them without a mark.
| Corporate action | What happens to the count | What happens to the chart |
|---|---|---|
| Split or bonus | Rises, and every existing holder’s count rises in the same proportion | Restated by a factor, so the line stays continuous — the mechanics module covers this |
| Rights issue | Rises, and existing holders get the first opportunity to keep their proportion by paying for it | Adjusted with a factor, because the entitlement had a value that holders either used or sold |
| Qualified institutions placement | Rises. New shares are sold to institutions at a floor price computed from recent market prices under the regulations | Nothing. The line continues as though the company were the same size |
| Preferential allotment | Rises. Shares are issued to named persons — often promoters or a strategic investor — with a shareholder approval and a pricing floor | Nothing, though the announcement itself frequently moves the price |
| Convertible warrants | Rises later, on a date and at a price fixed today. Part of the price is paid upfront and the balance on exercise within the period the regulations allow | Nothing at either end. A dated, disclosed, price-linked future increase in the count that no chart can represent |
| Employee stock options exercised | Rises gradually and continuously as vested options are exercised | Nothing. The most invisible of the lot, because it arrives a little at a time |
| Buyback | Falls, as the company extinguishes the shares it bought | Nothing mechanical. If you do not tender, your proportional claim rises — whether that was worth the cash the company spent is a separate question the chart does not answer |
| Capital reduction | Falls, by cancellation under a tribunal-sanctioned scheme | Depends entirely on the vendor, and the arithmetic is dealt with below |
The extreme case, where the chart is actively misleading
A capital reduction cancels part of the paid-up share capital under a scheme sanctioned by the tribunal, and it is the sharpest version of the problem. The most consequential Indian example is a company emerging from insolvency: a resolution plan approved by the tribunal can extinguish existing equity outright, cancel the great majority of it, or leave it in place while issuing so many new shares to the incoming investor and the lenders that the old holding becomes a rounding error. The company can remain listed throughout, under the same symbol, with one unbroken price series running across the date on which the old claim was written down.
- The shareholding pattern is filed quarterly and is free. It carries the total number of shares and the split between promoter, institutional and public holders. Two of those filings, a year apart, answer the entire question this lesson raises in under a minute.
- Warrants are the most forecastable dilution there is. They are approved at a general meeting, priced then, and convertible within a period fixed by the regulations. The number of shares that will exist on conversion is public from the day it is approved.
- Compare market capitalisation across time, not price. “The stock is where it was in 2021” and “the company is valued where it was in 2021” are different sentences, and only the second one survives a share issue.
- Per-share history stops being comparable across an issuance. Anything you compute per share across a large placement — including your own average cost, if you added — is a mixture of two capital structures.
- Notice the direction of travel, not a single event. One placement funding an expansion is ordinary corporate finance. A count that has risen every year for five years, through preferential allotments and warrants to the same group of people, is a pattern, and it is a pattern the chart is structurally incapable of drawing.
A company with 10 crore shares trading at ₹400 places 2 crore new shares with institutions at ₹380. Assume the market values the company at its previous market capitalisation plus the cash raised. What does the chart show, and what has happened to a holder of 10,000 shares?
Builder do saal se wahi rate bol raha hai — 6,200 rupaye square foot — aur seena thok ke bolta hai ki daam nahi badhaya. Yeh nahi batata ki pehle wala flat 1,100 square foot ka tha aur ab wala 950 ka hai. Share ka bhaav wahi rate hai; shares ki ginti flat ka size. Company naye shares jaari kar de toh chart pe ek prasad ke barabar bhi harkat nahi hoti, par aapka hissa chhota ho jaata hai. Ginti chart pe nahi likhi hoti — teen mahine mein aane waale shareholding pattern mein likhi hoti hai, aur woh muft hai.
- A chart plots price per share, which is a ratio whose denominator it never shows.
- Splits and bonuses divide an existing claim and are adjusted for; placements and warrants create new shares and are not.
- A placement can move the price by well under one per cent while cutting your proportional claim by a sixth.
- A capital reduction or a resolution plan can destroy a claim on a date when no seller sold anything.
- Compare market capitalisation over long horizons, and read the quarterly shareholding pattern for the count.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.