Jagannadham Thunuguntla, equity head with Delhi-based merchant bank SMC Capitals, said: "The increase in companies doling out bonus equity to its shareholders reflects that the domestic economy is on the path of recovery."
Financial Express 18 Feb 2010 India Inc offers 40pc more bonus shares this fiscal
1. India Inc offers 40pc more bonus shares this fiscal
NEW DELHI, Feb 9 (Economic Times): Issue of bonus shares by India Inc to its shareholders in
the first 10 months of the fiscal has shot up 40 per cent over the total during the fiscal ended
March '09, after declining for two straight years.
Partly attributed to the rise in stock market valuations of companies, jump in bonus issues
indicates positive sentiment of the corporate sector to service larger number of shares.
Ravi Sardana, senior vice-president, ICICI Securities, said: "Companies have performed well
this fiscal, which, in turn, has giving them the confidence to expand equity capital base and issue
bonus shares."
As many as 61 companies have issued or announced bonus shares in the April '09-January '10
period, including Reliance Industries, Britannia, TCS, Jindal Steel, Divi's Lab, Adani
Enterprises, JP Associates, Ramco Industries, Gujarat NRE Coke and Crompton Greaves.
Under a bonus issue, companies offer free additional shares to existing shareholders. This is one
of the ways of rewarding shareholders, who largely benefit from capital gains, among other
means such as a dividend payout.
However, as against a dividend which involves actual payout of money, in case of a bonus issue
the share price of the company adjusts accordingly to reflect the increase in the number of shares
and hence neither the value of the company nor the value of holdings of a particular investor
marks a change. Typically, shareholders benefit indirectly as a lower trading price increases
liquidity and investor interest pushing up the stock price eventually.
New shares are issued to shareholders in proportion to their holdings as per the bonus
announcement. The number of companies issuing bonus shares declined more than a quarter
after hitting a peak in 2006-07 to 72 firms in 2007-08 and shrunk further to just 44 companies for
the year ended March '09. This came after three straight years of increase in number of bonus
issues, when more listed firms announced a bonus bonanza in line with the bull run of the stock
market.
Bonus shares are issued by companies through capitalisation of their free reserves. When a
company announces bonus issue, it is an indication of its management's confidence to serve a
larger equity base. This is through the expectation that it would be able to increase its profits and
then come with dividend payouts on a larger block of shares in the future.
Jagannadham Thunuguntla, equity head with Delhi-based merchant bank SMC Capitals,
said: "The increase in companies doling out bonus equity to its shareholders reflects that the
domestic economy is on the path of recovery."