Rights Issue of Shares Explained | Loophole in Rights Issue every Investor should be Aware of

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A Rights Issue is used by companies to raise additional capital from existing shareholders. A rather noble purpose, until some promoters figured out how the same rights issue can help them acquire additional shares in the company at a very low cost of acquisition i.e. a share discount of 99.7%. Worse, this discount on shares is missed out by the unsuspecting public shareholders
In this video, I look at this practice of offering additional shares to existing shareholders at a deeply discounted price and how it ends up hurting the public/retail shareholders in the process. As a live example, I shall be looking at the curious case of Sandur Manganese & Iron Ore Limited and why they offered a rights issue at a mere 10 rupees when the market price per share was 4,500 rupees (needless to say, the promoters were ₹23 crores richer in the process)
👉 Video Chapters:
00:00 How Rights Shares are different from Bonus Shares/Split?
01:26 Structure of Rights Issue
02:37 Increase in Promoter's Shareholding
04:43 Curious Case of Sandur Manganese & Iron Ores Limited
05:58 Sandur Manganese Rights Issue in Numbers
09:25 Certainly a Loophole SEBI needs to Plug
10:08 Options for Retail Shareholders
12:13 Shankar's Viewpoint
🙋‍♂‍ Follow Shankar Nath on bio.link/shankarnath
👉 Some Useful Resources & Readings:
‣ Beat The Street Twitter thread: / 1578743069775908867
‣ Article on Deeply Discounted Rights Issues: economictimes.indiatimes.com/...
‣ Anil Singhvi's Interview with Mr. Bahirji Ghorpade (MD of Sandur Manganese): / 1513445631540441094
‣ How to apply for a Rights Issue? www.chittorgarh.com/faq_pg/ho...
‣ FAQs on Rights Issue & Rights Entitlements: support.zerodha.com/category/...
#rightsissue #stockmarketscam #rightissue
Disclaimer: I am not a SEBI registered investment advisor or research analyst. The content posted on this platform is purely for educational purposes and none of it constitutes investing or trading advice. Viewers should do their own research and diligence before investing or acting on the information presented

[@shankarnath]

If you are hearing of a rights issue or understanding it's implication on your shares for the 1st time, then it's likely that many of your friends and wellwishers are also in the dark. Help them realize the gravity of it by sharing this video with them. Let's not get StockPocketed

[@Little-bird-told-me]

I never knew this thing existed. Thanks man

[@shubhamprabhakar6610]

Woaa...Just finished watching, this is some next level thing. Never heard of it. Thank you for letting me learn something new.

[@shankarnath]

Glad it was helpful!

[@Rajesh.A]

This is news. Didn’t know Rights issues can be manipulated. As usual Shankar thank you so much for enlightening . Hats off for your content. Keep going. Great work

[@shankarnath]

Glad it was helpful. Thx for your appreciation

[@capitalworx]

I wasn't aware of this loophole. Thanks for enlightening me. Rights issue application is tedious. I remember i tried to apply for m&m finance once but the process being tedious i chose to sell the rights. This could also be the reason why people miss out on rights.

[@shankarnath]

Glad it was helpful! Yes, it's something many investors are missing out on and eroding capital as a result.

[@KalpeshFulpagare]

Ohh ho. This is like doing a scam in a legal way. Very informative video.

[@shankarnath]

Glad you liked it and found it useful

[@Sachin19881112]

Your content is next level , so many finance channels are coming with low quality content , Kudos , you deserve more than million subscribers

[@shankarnath]

🙌 Thank you very much for your encouragement and wishes

[@agytjax]

Another insightful piece from Shankar ! This shows that even if you are a value investor/ coffee can investor, you just cannot invest and forget. This is one such instance, where periodic and regular monitoring of the portfolio and review of the goings-on in your invested entities is a must. Imagine if such a stock turns out to be a multi-bagger - the opportunity cost is immense. Sometimes, it is good to have some amount of FOMO🙂

[@shankarnath]

Thank you. Glad you found it useful and great to see you deriving a learning plan from it.

[@mineshtemkar9963]

Thank you for coming up with this mystic topic & explaining it in a lucid way. As always the forensic analysis is just awesome. Thank you very much

[@shankarnath]

My pleasure! Happy you found it useful. I really enjoyed making it and I wish more people watch this kind of content (most dont, unfortunately) as it will help them not lose a lot of money unnecessarily

[@dsaha7700]

An eye opener forensic audit,many thanks for wonderful learning content... as you provided example of REs same was sold at premium amount then actual price...thanks

[@shankarnath]

Most welcome. Happy to know you found this useful. Do share it with your friends and wellwishers, its something many aren't aware of

[@anupdsouza]

This was quite eye opening. I must admit I've only opened company announcements for dividend announcements. Thank you for explaining it so well Shankar!

[@shankarnath]

Most welcome, Anup. Happy to know you found it useful and learnt something new

[@kris7968]

I didn’t know this. I have been in stock market from 5 years. Valuable information. Thanks

[@shankarnath]

Thx Kris. Yes, many don't know about this (me included). Do share it with your friends and wellwishers, this knowledge needs to spread for everyone's betterment

[@arulmuruganK94]

I am recommending your channel to everyone. retail investor wealth now have been transferred to the promoters in broad day light.

[@shankarnath]

Thank you Arul. Please ensure more people know about this Rights Issue loophole. I has really surprised the first time I heard about it

[@sachin_2601]

This is some next level info coz didn't knew this and good to learn something valuable. Thanks for the educating us Shankar and for a great job 😇

[@shankarnath]

My pleasure

[@zmzabuawala]

Awesome learning, Thank you so much!

[@shankarnath]

You're very welcome, Zainab. Do share it with your friends and wellwishers

[@godwinbraganza7790]

This was really helpful esp with the new rights issue on heritage foods... Thank you

[@shankarnath]

Glad it was useful 👍

[@rahulkrishna848]

Thank you for the video sir I came to know about this when there was rights issue by heritage

[@shankarnath]

Most welcome!

[@jayadevtn1987]

This one is so good and so much not discussed about.. very insightful ..thank you sir . And yes my reaction was exactly the same about checking my Gmail and while I was doing , I reached the part of video where your reaction was the same as well , and that was some kind of coincidence ..haha.. 😃

[@shankarnath]

You're most welcome. I'm sure many more viewers would have opened Gmail :)

[@sangramkesharidas6767]

@@shankarnath me as well 😂

[@Anbu-Ini]

Brilliant video.. nicely presented..will open the eyes of many investors. Thanks Shankar Ji.

[@shankarnath]

Most welcome! Glad you liked it

[@deivas1425]

Thanks for your valuable information to everyone 🙂.. hats off to you..

[@shankarnath]

Thank you so much

[@ranadeepghosh]

Wonderful knowledge, thanks Shankar!

[@shankarnath]

My pleasure, thanks Ranadeep

[@satishkp]

That was a blind spot.Thanks for throwing some light on it.

[@shankarnath]

Glad you found use for it

[@imjituchauhan]

Thank you for valuable content 😊

[@shankarnath]

So nice of you, my pleasure!

[@ankiindi2886]

Thanks a ton for this useful video.

[@shankarnath]

Most welcome

[@vmshastri4983]

Really insightful! Thanks for sharing.🎉

[@shankarnath]

Glad it was helpful! Most welcome

[@drjatin]

Thanks, for informing, wasn't aware of it.

[@shankarnath]

Any time! Happy you found it helpful .. these are some things we don't expect would happen, but it does

[@aadill77]

This is one gem of a video ❤

[@shankarnath]

Thank you Adil

[@Saibeti]

THANKYOU SO MUCH SHANKAR

[@shankarnath]

Most welcome, Neeru

[@karthikeyanv463]

Great one Shankar. Thanks a ton 😊🙏

[@shankarnath]

My pleasure, Karthekiyan 😊 Please do spread the word .. I think this is something not many understanding and I don't want to see investors like you & me lose money because of a technicality.

[@gopikannans9246]

An eye-opener session and an excellent one to understand new things.

[@shankarnath]

Thanks, glad you liked it

[@arunelangovan2577]

Thanks for educating us 😊😊

[@shankarnath]

My pleasure! Please do share this video with your well-wishers, many don't know about this rights issue loophole

[@HARSIMRAN2070]

thanks a lot for such a crisp video

[@shankarnath]

Glad you liked it. Most welcome

[@scirecoveryjourney5598]

excellent sir..

[@shankarnath]

Many thanks

[@gjayar]

Wow!!! Pls make more of these types of forensic investigation videos on stock market… so that we don’t miss such opportunities in the future

[@shankarnath]

I'll try. Thanks for your appreciation and suggestion.

[@samsrini]

Sooner or later Shankar start teaching fundamental analysis 😀 I request Shankar to explain etf and how one can create their own etf copying index weightage.. I'm eagerly waiting Btw this content is very important to know. Thanks for continued education

[@shankarnath]

Thanks for your suggestions .. I'll surely add it to my content queue 🙌

[@shockits5688]

What a telling tale! Would never have thought of this. A very useful video.

[@shankarnath]

Glad you found it helpful

[@kapilpatel9379]

Wow sir kitna badhiya samjhaya h

[@shankarnath]

dhanyawad 🙌 .. mujhe bhi ye video bahut achcha lagta hai

[@sharanraja]

Wow, clean and neat expelnation.

[@shankarnath]

Thank you!

[@ramyasri6093]

I never know this big a scam is going on sir... Thanks for enlightening us..

[@shankarnath]

My pleasure, glad you found it useful. It important more people know about this

[@aasingh7027]

Superb video, much appreciated

[@shankarnath]

Thank you. Glad you liked it

[@shankarnath]

Thanks so much for watching!

[@divyankbarnwal]

Damn sir. This is so informative. Added straight to my saved videos

[@shankarnath]

This is an important video. It's a pity so less people have seen it.

[@divyankbarnwal]

@@shankarnath shared with my connection sir, did my part. Keep educating us, way to go.

[@nitinjain4439]

Great work thanks

[@shankarnath]

So nice of you. Thank you Nitin

[@badalgallery]

As usual nice video .

[@shankarnath]

Thanks a lot

[@DrNikkhil]

Will need to watch this thrice. Used to always wonder what rights issue meant Thanks

[@shankarnath]

Most welcome. Yes, ignoring it can be highly injurious to one's wealth.

[@DrNikkhil]

@@shankarnath can you make a video on Indexation benefit , Insider Selling? I think you are the only person who might give a thought to this.

[@shankarnath]

@@DrNikkhil Thanks for the suggestion, I'll add it to my content queue

[@chandankumarjha7497]

Awesome explanation

[@shankarnath]

Glad you liked it

[@mukeshkannan7837]

Thanks Shankar. It's a surprise to me on this loophole. Hope MF AMC handles & reflects it in NAV.

[@shankarnath]

Most welcome

[@sms9865]

This is excellent 👏👏

[@shankarnath]

Thank you very much

[@nabeelyahiya]

Eye opener❤👌👍

[@shankarnath]

Glad you found it useful

[@rajatdas7003]

Thank you sir 🙏❤️

[@shankarnath]

Most welcome

[@arvindkumar-eu6vb]

We hardly get Fundoo professor videos today. Your videos are a good alternative to it.

[@shankarnath]

Maybe because I learnt investing from him way back in 2001

[@arvindkumar-eu6vb]

@@shankarnath O Really! Where MDI? probably that's why I instantly connected with your content. Subscribed and shared.

[@viks710]

Very useful thanks

[@shankarnath]

Welcome 😊

[@sujithbhat7118]

Thank you Shankar for this very useful topic. Could you please educate us on 'Grey market premium'? How it works and why someone would pay such a huge premium on the first day of issue?

[@shankarnath]

Most welcome. Thank you for the suggestion, I'll add it to my content queue

[@aakashnarayan926]

Enlightening, thank you Shankar sir! Can you also clarify what will be the implication when right issue is brought at CMP or slightly higher than CMP. This happened today when Markolines announced that they are bringing Right issue at Rs 167. During morning hours, Its price was around 155 though it closed at 166.90 today.

[@shankarnath]

Most welcome. Apologies, wont be of much help here as short terms plays like CMP vs rights issue price is not something I am interested in or have knowledge on.

[@siddharthjain49]

Hi Shankar Please make video on electric vehicular stocks .. you are the only person , I can trust with honest and comprehensive analysis

[@shankarnath]

Thx for the suggestion, I'll add it to my content queue

[@siddharthjain49]

@@shankarnath thanks Man . Really appreciate it

[@ShantanuNandy]

Oh no...I just missed the rights issue of Hatsun Agro, thanks sirji, at least I didn't miss the knowledge

[@shankarnath]

Always welcome, please do share this knowledge with your friends and well-wishers so that they dont miss out.

[@shankarnath]

You're welcome, Shantanu! I'm glad you found the video helpful.

[@harikrishnanjavahar6718]

Sir really nice vedio. Thank you for this information.. Sir please make vedios about saurabh mukherjea stocks. Coffee can investment

[@shankarnath]

Thank you very much. I have a video on Coffee can investing on this channel. Pls have a look: kzbin.info/www/bejne/q4uog5dqpa-hiLs

[@harikrishnanjavahar6718]

@@shankarnath I was asking about monopoly of these stocks and their future

[@shankarnath]

@@harikrishnanjavahar6718 Thx for your suggestion. I will add it to my content queue

[@harikrishnanjavahar6718]

@@shankarnath thank u sir

[@PrateekRathor]

Thank-you! 🏅🔥😌🌈

[@shankarnath]

You're so welcome!

[@dptheindian]

Nice Video ... 👍🏻

[@shankarnath]

Thanks ✌️

[@manish_mudgal]

Wow ,i m happy to subscribe u sir

[@shankarnath]

Glad to hear that 🙌

[@1Bond007]

Very nice video ..

[@shankarnath]

Thanks!

[@tahirhusain4090]

Thank you

[@shankarnath]

Welcome!

[@1Bond007]

Look at those smiles in that news channel lol

[@shankarnath]

They cropped out the high-fives

[@shashiDodderi]

Checked Gmail? I also, before seeing this part, paused after listening to the 83 % loss and checked Gmail!!!

[@shankarnath]

Cool 👌

[@shaikakber4717]

Much required one.

[@shankarnath]

Thank you very much

[@karthikeyanv463]

Thanks

[@shankarnath]

Thank you very much for this kind gesture Karthikeyan. I'm glad you liked this content piece and found it useful.

[@Saurabh.P]

I think Heritage diary issued rights issue last year.

[@nishantkumar9658]

I have been following you when you just started and you had few thousand subscribers. The moment I saw your first video I became your fan. Sometimes some of your contents go over my head but at that moment my mind say "This man has potential and can change your life". And I watch your video again. Thank you so much for such wonderful contents and that too in a very unique and creative way. I can never miss your videos. I have just started working in bank and very enthusiastic about stock market and investment. Is there any way I can contact you for some guidance?

[@shankarnath]

Thank you Nishant

[@GauravSingh-ey2hs]

mind boggling 😊

[@shankarnath]

Glad you found it useful. Please share it with your friends and well-wishers & do invite them to subscribe to my channel

[@haribram]

Heritage foods is doing similar numbers

[@shankarnath]

Thanks for sharing

[@malayaliAI]

What if we own mutual funds only and these funds own shares in such a company. Will the mutual fund company handle this or we should still be watchful.

[@shankarnath]

The mutual fund will take decisions on behalf of the unitholder

[@anuraggupta1359]

Sir I recently turned 20 and wanted to start mufual fund sip for long term....I don't have any goal for mutual fund but just want to start asap Therefore I am thinking to invest in one smallcap fund and one large+mid cap fund Sir plss suggest me is Quant smallcap fund is good for start and long term...? Should I go and start for sip ?? THANKYOU ☺️

[@shankarnath]

Hello Anurag - congratulations on your decision to start investing via mutual funds. You might not see it immediately but this will help you in the long run. I have not researched the quant scheme you mentioned. Pls allow me to circle back once I have something for you. Wishing you the best

[@anuraggupta1359]

@@shankarnath Thankyou sir.....but if any another fund you can suggest me as my experience from direct stock purchase is not soo good 🥲😂i am investing from last 2 years and in -16% portfolio But I really go for long term consistent investing by mufual fund ....Can you suggest me 1 or 2 names so I can start my sip's. It will be very helpful ☺️ thankyou once again

[@shankarnath]

@@anuraggupta1359 Apologies Anurag, I don't suggest specific schemes because the way I look at my portfolio might be very different from yours - I mean you are 20 and I am 42 years old, your income is different, your priorities are different from mine etc.

[@tissyj]

👍🙏

[@syams84]

Spirit is missing...what are regulators doing?

[@agytjax]

Interesting , informative and educative video. A small discprepancy : at 3:59, shouldn't the per share price after Rights issue be Rs. 255 (51000/200) ? If so, all the subsequent calculations need to adjusted

[@sumitalwar]

@ shankar sir What do mutual funds do when rights issue come ?? Should a Mf investor be assured that mutual funds don't act naive in right issue case..if amc doesn't subscribe to rights issue at deep discounts , in such a case a suspicion arises of any quid pro quo of the AMC concerned. Second request sir ..can we have a list of AMCs which subscribed to shares of Paytm , Naika etc etc..

[@shankarnath]

Hello: 1. I don't have an idea. Prudence has it that every mutual funds are likely to analyse every rights issue and figure out if participating in it is more beneficial or selling the REs make more sense. Curious to know - have you come across a situation like this which has aroused your suspicions? 2. Apologies, I don't have such a list

[@sumitalwar]

@@shankarnath @Shankar sir. As we have clean companies ( as saurabh mukherjee saus ) we should also look for clean AMCs . I just got curious to know whether paytm ,nykaa , zomato and upcoming Mama earth were helped by any AMC or not..Since the Axis Mf fiasco where the AMC got off saying that the fund manager was involved but if an ipo is helped by and Amc there is no reason to believe that the Amc itself is not clean.

[@sumitalwar]

I am presuming that AMC are allowed legally to invest for IPOs. Or offer for sale etc.

[@saiprakash1958]

Stock market is the place where the money is transferred from impatient to patient and Rights issue is the tool to transfer money from patient to impatient. The main purpose of Rights issue is to loot the holdings of long term investors who don't keep tracking their holdings because of their trust in company's management or to loot shares from dormant accounts.

[@maalik781]

I see an opportunity for trading platforms. They can show the upcoming and ongoing right issues, and can even offer customers to set up automatic instructions to buy right issues if they are given at more than X% discount rate. Either Sebi stops the manual paperwork process, or trading platforms come up with an automated way to do it.

[@sumeetsheokand8886]

made it 1k like

[@shankarnath]

Thank you very much!

[@mdn1805]

Sir, RSWM rights issue is in progress and allocation, listing will be done in couple of days. I wish this video would have reached investors of RSWM earlier. Due to non clarity and ambiguity in applying i lost my rights and of course share prices loss as well

[@shankarnath]

Thanks for sharing. I'm certain many more instances will come up in the future so it's better to start late than never

[@seshanbalakrishnan8648]

You should also add that existing investors can apply for additional shares over & above their entitlement ratio. Of course the additional share allocation (over & above the entitlement) is discretionary and in the hands of management. But more often than not I've found that management rewards you with additional shares

[@shankarnath]

Thank you for your suggestion

[@MrCupka]

can you please make videos for NRIs investing in india and all the nitty-gritties around it thanks, love the content and esp the video graphics

[@shankarnath]

Thanks for your suggestion, I'll add it to my content queue

[@sivachandanperamana3622]

Hi Sir, please explain how to invest in tax saver bonds for the limit of Rs.20000 (section 80CCF of IncomeTax)

[@shankarnath]

Thanks for the suggestion. I'll add it to my content queue

[@NITISHBHATT008]

Applying for rights issue is very tedious process IMO. I remember, selling my tradable -RE shares of Mold Tech Packaging at around Rs.600 in 2020, which were allotted to me as I don't know the process of applying for rights issue.

[@NITISHBHATT008]

It was issued for Rs.180 something....I sold it at around Rs.600+

[@anilshenoy5859]

Sir, The existing shareholders should apply for additional shares. In that case the shareholders will get additional shares in proportion to the un subscribed shares and will be able to get benefit. This will bring down the profits of the promoter.

[@shankarnath]

Thanks for sharing

[@santhoshviswanathan9618]

Interesting

[@shankarnath]

Thanks!

[@sumeetsheokand8886]

sir please explain more about right issue what are complication some people in other channels they cant sell re please your more views with risk involved etc

[@Nehas06]

pls explain how promoters get the benefit of right issue if somebody understood

[@goutham614]

Watch the video first

[@mahesha6363]

If promoter made high profit shareholders who applied for additional shares may also have made similar profit in percentage terms. I guess so. I am not an expert. Similarly mutual fund AMCs and HNIs may have made profit.

[@shankarnath]

Hello Mahesh, I explained that part in 04:11 and again in 06:24. Can you let me know where the confusion is?

[@gitgud9082]

Why are the rights being issued at a different price?

[@Little-bird-told-me]

what happens is the company exceed the mandatory 75% limit while redeeming right issue ?

[@Little-bird-told-me]

It s clever way to "having the cake while eating it too" WIN WIN for promoter loss loss for investor

[@RONEYCOOOPER]

You are a killer😂

[@shankarnath]

Glad you liked it

[@shubhamprabhakar6610]

1st view

[@shankarnath]

Thanks for watching!

[@Little-bird-told-me]

Right issue is a tell tell sign of *staying away from that company*

[@madhus3799]

@Shankar Nath Sir Thank you for Uploading such valuable, scholarly, beneficial, helpful, and worthwhile videos Sir, I and many Retail investors like me don't even know what are "rights issues", then what can we do I've so many stocks in my portfolio and I'm a full-time professional worker, I work hard day and night, and I can't sit track "Rights issues" or Many people like me who are working Day and night, or who are working from remote places, or people who are ill and admitted in Hospital, who are undergoing depression, etc Many people can't track Rights issues, or if they get to know also they're unable to do anything about this These so-called "Rights issues" are completely legal fraud by Promotors This is a Fraud, this is a proper Con play by Promotors and wrong on so many levels, these are unethical ways of making money by promotors We invest for decent returns and we forget, If we are doing Coffee can investing what the retail investors should do........ From These kinds of "RIGHTS ISSUES" Even if we retail investors don't make money no problem but if we lose money that hurts 💔💔🤕🤕🤕🤕 the Most, We lose everything, Every Hard earned penny. We Retail investors get aversion about Stock Market if Such kind of Con plays happen, we Retail investors go away from the Market suffering from such Rights issues/Con plays SIR SEBI has to take strict action against this Con plays The funny thing/Tragedy is I don't even know How much I've lost through these kinds of Rights issues to date😟😟☹️☹️

[@shankarnath]

Thanks for sharing, Madhu ji. You are right -- there is always a need to track your shareholding via corporate announcement etc. Am I right in assuming you invest via mutual funds and leave it to the fund house to figure everything out?