Negative share price! What lies ahead post Majesco’s dividend? | Economic Times

Mumbai: What happens when a stock price turns negative? That is a situation the capital markets regulator and stock exchanges have not envisaged. Insurance technology firm Majesco’s record dividend may force them to come up with a solution as its stock price faces the possibility of slipping into a negative value.The company announced a Rs 974 dividend per share on Tuesday. Its record date is on December 25. If the stock price closes below Rs 974 on December 22, the ex-dividend price on December 23 would be negative.The stock declined 1 per cent on Wednesday to close at Rs 975. Brokers said there is a high possibility of the stock price’s value becoming negative as retail and high-networth investors are likely to sell it before the record date to avoid higher taxes.Exchange officials could approach Sebi for its opinion in this matter.“This is the first time exchanges have encountered such a situation,” said an official from a leading stock exchange. “We are in touch with each other and if required, we will seek Sebi advise.”Sebi, BSE and NSE did not respond to queries.The record dividend announced by Majesco have prompted investors to sell the stock before the record date. This is because the dividend will be added to the income of the shareholder and taxed at normal rates as per their income bracket. Investors will have to pay as much as 40 per cent tax on dividends. HNIs have to pay an additional surcharge.“The best way to sort out this issue is to allow price discovery on the ex-dividend day instead of just an adjustment,” said Arun Kejriwal, CEO, KRIS Research & Advisory. “Even at a current process, the price adjustment will take at least a month due to circuit filters. Exchanges will anyhow have to modify their process.”Majesco had sold off its US-listed business during the past quarter and received proceeds of Rs 3,100 crore after paying Rs 700 capital gains tax. The company is left with no operating businesses, prompting it to return the entire proceeds of the sale to shareholders.The buzz in the market is several firms, which are paying dividends, may have bought Majesco shares as they can set off the dividend gains against the dividend they paid. Around 1.47 crore shares changed hands in the last two trading sessions compared to an average 4 lakh shares traded in the past one month.