A Company gives Bonus share to its investors, from the reserve part of its profit over the years. When these free reserves increase, the company transfers a part of the money into the capital account, from which it issues bonus shares. The shares which are fully paid are eligible for bonus.
According to Sudip Bandyopadhyay, managing director and chief executive officer, Destimoney Securities. "The purpose of issuing bonus shares is to increase liquidity in the stock and hand out the available distributable net worth in a cash-neutral manner,"
Usually, after the bonus issue, the share price of the company gets adjusted according to the bonus ratio. For example, if the price before bonus is Rs 200 and a company issues bonus shares in the ratio of 1:1, the post-bonus share price will be Rs 100, which means that the total market value (2 x Rs 100=Rs 200) remains the same.
The analysis also shows that there is high chance a stock will rise after the record date. However, experts have mixed views on this.
During the one year period from the record date, the adjusted stock prices of Mahindra & Mahindra, TCS, L&T, Ranbaxy and HDFC surged 82 per cent to Rs 329, 79 per cent to Rs 775, 71 per cent to Rs.1,654, 71 per cent to Rs. 480 and 65 per cent to Rs 124, respectively.
