Capital Market Chronicles – Episode 142: BONUS ISSUE AND STOCK SPLIT (Part I)

Capital Market Chronicles – Episode 142: BONUS ISSUE AND STOCK SPLIT (Part I) 🎁📈

Ah, the Bonus Issue — the stock market’s way of saying, “You’ve been loyal. Here, take more of me. No strings attached… well, almost.”

Think of it like your grandmother at Diwali:
"Beta, you’ve grown so much… have extra laddoos." 🍬
Only here, the laddoos are company shares, and you don’t need to endure a long lecture about marriage in the process.

🎁 What’s a Bonus Issue?

Also called a scrip issue or stock dividend, it’s when a company dips into its retained earnings (aka money it didn’t already spend on “company parties” 🥳) and gifts shareholders extra shares for free.

No cash, no confetti — just more slices of the ownership pie. Your share count goes up, but the total pie size? Exactly the same.

🛠 How It Works:

1. Issuance Ratio – The “Buy One, Get One Free” Sale of the Stock Market
Example: 1:1 Bonus → For every share you own, you get one extra.
Own 100 shares? Congratulations, you now have 200. 🎉

Could be 2:1, 3:2… basically, corporate math designed to make you feel rich without actually making you rich.

2. Impact on Share Price – The “Shrink to Fit” Effect
After a bonus issue, the share price usually drops. Not because your stock suddenly went on a diet, but because there are more pieces of the same pizza. 🍕

Example: ₹100 per share → After 1:1 bonus → ₹50 per share.
Same value, more slices — no magic money glitch here.

3. Effect on Financial Statements – Moving Furniture, Not Buying More

• Reserves (retained earnings) go down.

• Share capital goes up.

• Total equity stays exactly the same — it’s just been rearranged into smaller, cuter pieces.

📈 Why Companies Do It:

• Increased Liquidity: More shares = easier buying & selling.

• Positive Market Vibes: Tells investors, “We’re doing well enough to give you a gift without raiding the cookie jar.” 🍪

• Affordability: Lower post-bonus price attracts smaller investors who were previously priced out.

⚠️ Potential Downsides:

• Dilution of Share Value: Price drops proportionally — no free lunch here (just more plates).

• Possible Window Dressing: Sometimes used to distract from less-than-great performance. Always check the company’s health before getting carried away. 🩺

💡 Investor Tip:
A bonus issue is like having one giant gulab jamun 🍯 and cutting it in two — more pieces, same calories.
Your dessert plate looks fuller, but your stomach knows the truth.

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