The Telegraph
Since 1st March, 1999
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Bonus icing for bourses

Mumbai, May 14: Indian companies are sharing their spoils of success by scooping up dollops of bonus shares for investors.

The trend picked up last fiscal after a lean spell of nine years, with companies brandishing excellent report cards and stock markets on a wild bull run.

And the fizz is stronger this fiscal.

Bonus issues became a rage in 1994-95 with as many as 145 companies offering the freebies. However, the numbers got reversed, declining from 122 issues in 1995-96 to 91 in 1996-97 and just 22 in 2001-02, the year of the infotech meltdown.

The vigour was back in 2004-05, when 64 companies offered bonus shares. Last fiscal, it was 81 companies and in 2006-07, 16 companies have spread the cheer in just over a month.

According to the grapevine, several other companies have lined up issues.

Unitech Limited was the latest to go generous, offering 12 equity shares for every share held by investors.

The three IT biggies, TCS, Infosys and Satyam, have each offered shares in the ratio of 1:1 to its investors.

The list for both the last and current financial years includes a large number of mid-cap companies.

However, big-ticket multinationals are conspicuous by their absence.

Other than bonus, it has been a season of stock splits, imparting a greater spring to markets.

However, companies do not tinker with their balance sheets while declaring splits. Splits only increase the liquidity of a stock by reducing the paid-up capital. In case of bonuses, reserves are capitalised and balance sheets altered.

Normally, companies announce bonuses or splits when share prices run up significantly.

“While the valuation of a company does not change as per fundamental analysis because of a bonus issue or a stock split, it does increase the liquidity, which is taken positively by the markets,” said Sumeet Budhiraja, vice-president, Edelweiss Capital.

“While there might be a lot of euphoria over such issues, for a long-term investor, neither options make a difference as the benefit on either may get neutralised over the time. However, an investor with a short-term outlook may benefit by a split rather than a bonus issue,” added Budhiraja.

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