(2) Future Growth Prospects Of The Underlying Company
It is one of the most significant factors impacting share price action after rights issue. Not all rights issues will earn huge profits for its shareholders. Issues that can quickly provide the needed fuel (in form of money) at the right time can bring the company on the new growth trajectory.
If future growth prospects of the company appear to be bright, strong & realistic then stock price is likely to surpass the issue price quickly.
Some of the factors responsible for boosting future earnings of the company include optimum utilization of company’s workforce & capabilities, launching innovative products & services, increasing customer base or big order inflow, increasing sales margin, favorable government policies, implementation of cost reduction strategy & many more.
On the other hand, if the future growth prospects of the company appear to be poor, diminishing & unrealistic then the stock price is likely to slide further. Thus, future growth prospects play a significant role in determining the probable direction of the stock.
[Read Also: 10 Possible Reasons Behind A Company’s Rights Issue]
(3) Outlook Of Entire Industry Or Sector Of Working
It is one of the most unbeatable factors impacting share price action after rights issue. Every company works in one or more sectors for its business activities. The concerned sector will directly or indirectly affect the process of revenue generation for a company.
If a sector is outperforming in the economy then most of the companies belonging to the concerned sector are likely to outperform as compared to similar size company from a struggling sector.
Similarly, rights issue of a company that belongs to an outperforming sector is likely to produce higher returns for the investors.
On the other hand, rights issue of a company that belongs to an underperforming or struggling sector is likely to produce lower or even negative returns for the investors. This investor’s perception is also reflected in the share price of the company after rights issue.
Thus, it will be a wise decision to invest in rights issues of company belonging to an outperforming sector rather than struggling sector.
- Factors Determining Market Price Action Post Rights Issue: Shutterstock