Rights Issue
A rights issue is an offer of new shares to existing shareholders in proportion to their holding (for example 1 new share for every 4 held), usually at a discount to the market price. It is a way for a company to raise fresh capital from its own shareholders first.
Shareholders on the record date receive rights entitlements (REs) — tradeable instruments credited to the demat account. You can subscribe (pay and take the new shares), renounce (sell the REs on the exchange during the trading window), or let them lapse (losing the value of the discount). SEBI has progressively compressed the rights timeline so issues complete within a few weeks of announcement.
Why a company raises rights matters more than the mechanics: funding growth or deleveraging at a sensible price can be shareholder-friendly, while repeated rights issues to plug operating losses dilute patient shareholders. Check the issue price versus market price, the size relative to existing capital, and whether promoters commit to subscribing their full entitlement — promoter participation is a meaningful confidence signal.
If you neither subscribe nor sell your REs, you lose real value: the market price typically adjusts for the dilution, so doing nothing is the one clearly wrong choice in a discounted rights issue.
How stocks tend to react
The stock often drifts toward the theoretical ex-rights price as the record date approaches — the discount gets arithmetically absorbed. Beyond that, reaction tracks the purpose: a rights issue read as growth funding at a fair price can be neutral to positive, while one read as distress funding tends to weigh on the stock well after the issue closes.
MarketPing measures this instead of guessing: every analysed announcement carries the stock's actual price reaction across 14 horizons, and the Reaction Lab aggregates how each category of announcement has historically moved stocks.
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Educational content, not investment advice. Regulations and tax rules change — verify current rules before acting.