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Issue of bonus shares by Corporate India to its shareholders in the first 10 months of the fiscal has shot up 40% over the total during the fiscal ended March ‘09, after declining for two straight years.
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This interesting jump in bonus issues indicates positive sentiment of the corporate sector to serve a larger equity base.
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Companies like Britannia, TCS, Reliance Industries, Adani Enterprises, Jindal Steel, Divi’s Lab, JP Associates etc have issued bonus shares in the April ‘09-January ‘10 period.
There are as many as 61 companies which have done so.
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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.”
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Corporate India has got the confidence to expand equity capital base and issue bonus shares owing to the fact that they have performed very well this fiscal.
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Bonus issue is an offer of free additional shares to existing shareholders.
This is one of the ways of rewarding shareholders, who largely benefit from capital gains.
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A company may decide to distribute further shares as an alternative to increasing the dividend payout.
It is also known as a “scrip issue” or “capitalization issue”.
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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.
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This came after three consecutive years of rise in number of bonus issues, when more listed firms announced a bonus bonanza in line with the bull run of the stock market.
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Bonus shares are issued by companies through capitalization 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.
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🙂
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