Mumbai, April 18: Bonus issues and stock splits announced by companies will increase the circulation of these shares on the bourses as the floating stock would rise manifold.
Infosys Technologies and Wipro were the latest to join the bandwagon of companies announcing a generous bonus issue.
Infosys alone will see 14 crore new shares accruing with institutions and retail investors. This excludes 4.89 crore floating stock held by the non-promoter category at present.
Investors often wonder on the recent trend of stock-splits. On Friday, Bajaj Hindustan got shareholders’ approval to split its shares with a face value of Rs 10 into 10 shares of Re 1 each. “Very few Bajaj Hindustan shares are traded on the bourses. We have only 8,500 shareholders in our roster,” said chairman Shishir Bajaj. “It is in our collective interest to split shares,” he added.
Cipla announced that its stock with a face value of Rs 10 will be split into five shares of Rs 2 each. Promoters, led by Yusuf Hamied, hold 40.96 per cent of the Cipla shares. The remaining are held by institutional and retail investors, who currently account for 59 per cent of the floating stock amounting to 3.5 crore shares. With the stock split, the floating stock alone would balloon to 21 crore shares.
Wockhardt has also gone in for a bonus-cum-stock split. It announced a bonus issue of one share for every two held and a split of its Rs 10 face value share into two shares of Rs 5 each.
A stock spilt is similar to a bonus issue as it increases the number of shares. However, in a bonus issue, the reserves are reduced by the number of shares issued, which is considered as a dilution in equity.
When a company normally splits its stock, it means that it will issue additional shares to the existing investors by reducing their face values. This is bound to change the equilibrium of the market in the coming days. It will see institutional investors, who kept away due to illiquidity, re-entering and some retail investors willing to buy as the market adjusts to a new ex-bonus price. Existing shareholders may even be tempted to sell part of their holdings to book profits.
