How is the Adjusted Closing Price Different from the Closing Price?

In the world of stock markets, the terms closing price and adjusted closing price are often used interchangeably, but they represent distinctly different values. For investors and analysts in the Indian share market, understanding these differences is crucial for making informed decisions. This article explores their definitions, calculations, and implications with the help of historical data and tables.

What Is the Closing Price?

The closing price of a stock represents the last traded price of the security during the trading session. It is determined when the stock exchange closes for the day.

Key Features of Closing Price

Time-Specific: It reflects the final transaction price of the day.
Market Influence: Factors like demand, supply, and market sentiment directly impact the closing price.
Use in Analysis: Often used as a reference point for technical analysis and stock performance.

For example, if Stock X traded at ₹500 at 3:30 PM on NSE (end of trading session), ₹500 would be its closing price.

What Is the Adjusted Closing Price?

The adjusted closing price is a modified version of the closing price that accounts for corporate actions such as dividends, stock splits, bonus issues, and rights issues. It represents the real value of the stock, adjusted for such events.

Key Features of Adjusted Closing Price

Corporate Adjustments: Reflects the impact of actions like splits or dividends.
Better for Analysis: More accurate for comparing historical data.
Long-Term Focus: Useful for evaluating trends over time.

Differences Between Closing Price and Adjusted Closing Price

Aspect	Closing Price	Adjusted Closing Price
Definition	Last traded price at market close.	Adjusted for corporate actions.
Use in Analysis	Short-term market trends.	Long-term trend analysis.
Impact of Adjustments	No adjustments made.	Reflects splits, dividends, etc.
Relevance	Day-to-day reference.	Historical accuracy and performance.

How Adjusted Closing Price is Calculated

The adjusted closing price considers corporate events to provide an accurate valuation. Below is a formula used to calculate it:

Adjusted Closing Price = Closing Price × Adjustment Factor

Example:

If a company issues a 2:1 stock split:

Closing Price Before Split = ₹900
After Split, 1 stock becomes 2.
Adjustment Factor = 1/2
Adjusted Closing Price = ₹900 × 0.5 = ₹450

Historical Data: Impact of Corporate Actions on Adjusted Closing Price

Stock	Date	Action	Closing Price (₹)	Adjusted Closing Price (₹)
Reliance	15 Sep 2020	Bonus Issue (1:1)	2,200	1,100
Infosys	31 May 2019	Dividend (₹50/share)	750	700
Tata Steel	23 Nov 2021	Stock Split (1:5)	1,500	300

This table illustrates how corporate actions significantly impact adjusted closing prices.

Why Is the Adjusted Closing Price Important?

1. Accurate Trend Analysis

Adjusted closing prices provide a true picture of a stock’s historical performance. They allow analysts to compare past data accurately.

2. Impact of Dividends

When companies issue dividends, the stock price often drops. The adjusted closing price ensures this drop doesn’t misrepresent historical trends.

3. Effects of Stock Splits

Stock splits increase the number of shares available, reducing the price per share. The adjusted closing price reflects this change, avoiding confusion.

Practical Applications for Investors

1. Comparing Stocks

Investors can use adjusted closing prices to make accurate comparisons across time periods, unaffected by corporate actions.

2. Technical Analysis

Many technical indicators, such as moving averages and relative strength indices (RSIs), rely on accurate historical prices. The adjusted price ensures these calculations are correct.

3. Portfolio Tracking

Adjusted prices allow for proper tracking of investment performance over the years.

Limitations of Closing Price and Adjusted Closing Price

Factor	Closing Price	Adjusted Closing Price
Accuracy	May not reflect actual stock value.	Adjusted but may lag in real-time.
Short-Term Use	Misleading during corporate actions.	Not ideal for intraday trading.

How to Access Adjusted Closing Prices in India

Most Indian investors rely on platforms like NSE, BSE, or third-party financial websites for this data. Adjusted prices are often indicated with additional notes for better clarity.

Case Study: Infosys

Background

Infosys announced a ₹50 dividend in May 2019.
Closing Price: ₹750.
Adjusted Closing Price: ₹700.

Impact

The ₹50 difference reflected the value distributed to shareholders, maintaining accuracy in historical analysis.

Conclusion

Understanding the difference between the closing price and adjusted closing price is essential for every investor in the Indian stock market. While the closing price is crucial for daily trading, the adjusted closing price offers a more accurate picture for long-term investment analysis. By accounting for corporate actions, it ensures a realistic valuation, helping investors make better decisions.