Market rally paves way for stock split, bonus issue by cos
Listed entities are increasingly resorting to bonus issues and stock splits to expand their equity base, hoping to cash in on the bull run in domestic markets that has pushed the benchmark Sensex past the psychological 20,000 points barrier, according to marketmen.business Updated: Sep 27, 2010 15:59 IST
Listed entities are increasingly resorting to bonus issues and stock splits to expand their equity base, hoping to cash in on the bull run in domestic markets that has pushed the benchmark Sensex past the psychological 20,000 points barrier, according to marketmen.
As many as fourteen companies, including Sun Pharma and Dabur India, have so far this month resorted to a stock split or bonus issue to make company shares more affordable for retail investors.
"Whenever the broader market rallies, individual shares become costlier, so the companies prefer the stock split method so that share prices do not get out of reach of retail investors," SMC Capitals Equity Head Jagannadham Thunuguntla said.
In tandem with the soaring market, companies' profits have also risen, which the firms want to share with their investors by offering bonus shares, Thunuguntla added.
Sun Pharma on Friday announced that its board has approved splitting the company's shares in the ratio of 1:5, which would result in every equity share of Rs 5 face value being divided into five shares of Re 1 apiece.
FMCG major Dabur India, too, came out with bonus stock options. Two-wheeler giant Bajaj Auto also gave bonus shares to its shareholders.
On similar lines, another consumer goods company, Britannia Industries, also went for a stock split, wherein stockholders received five equity shares of Rs 2 face value in lieu of every equity share of Rs 10 face value.
Echoing Thunuguntla's opinion, CNI Research CMD Kishore P Ostwal said, "The recent market rally is throwing open the opportunity of stock split and bonus issues for the big corporates, as they are in a better financial state to share their profits with their shareholders by giving bonus."
According to the market buzz, aluminium producer Nalco and Shipping Corporation of India are also likely to take the stock split or bonus issue route. Oil and gas major ONGC may also opt for a similar route.
Marketmen attribute the rising number of companies going in for these options to the positive momentum in the broader market, which is expected to continue for days to come, driven by strong foreign fund inflows and robust domestic growth.
The broader benchmark Sensex has gained a whopping 10.10 per cent during the month of September so far to 20,045.18 at the end of Friday's trade on the Bombay Stock Exchange.