Bonus issue declarations by companies have always drawn investors\’ and traders\’ attention. It\’s a common belief that bonus issue trigger a renewed boom in the stock price. Some traders adds such shares in their portfolio just before the record date of bonus for short term gain , sometimes without giving a second thought.
I had the same notion, too. But I became skeptical about this belief when I saw a few stocks showing no appreciation in months together after issue of bonus. So, I prepared the following data set to bring out the truth.
| Srl.no. | Name of Company | Bonus Ratio [additional : existing] | Bonus Record Date | Price on Record date | Highest/Lowest Price post bonus | Date of highest/lowest price post bonus | Annualized %ge return post bonus | No. of Days [ from (4) to (7) ] | CMP( as on 1st Oct 2024) |
| (1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10) |
| 1 | Titan Intech | 3:5 | 17-05-2024 | 66.34 | 72.37 | 24-05-2024 | 414.71 | 8 | 40 |
| 2 | Timescan Logistics | 1:1 | 17-05-2024 | 73 | 88 | 11-09-2025 | 63.56 | 118 | 83 |
| 3 | Nidhi Granites | 1:1 | 02-05-2024 | 153.55 | 172.6 | 19-09-2024 | 32.35 | 140 | 156 |
| 4 | Anup Eng. | 1:1 | 23-04-2024 | 1827 | 2329 | 01-10-2024 | 58.65 | 171 | 2329 |
| 5 | Shukra Pharma | 3:1 | 20-04-2024 | 85 | 128 | 19.06.2024 | 318.36 | 58 | 74 |
| 6 | Naapbooks | 2:1 | 19-04-2024 | 90 | 59 | 16.05.2024 | -465.64 | 27 | 62.64 |
| 7 | Grauer and Weil | 1:1 | 10-04-2024 | 98 | 116 | 01-10-2024 | 38.53 | 174 | 116 |
| 8 | Promax Power | 1:1 | 09-04-2024 | 71 | 42.5 | 01-10-2024 | -83.72 | 175 | 42.5 |
| 9 | Sunrise Efficient Marketing | 1:2 | 03-04-2024 | 70.63 | 40 | 01-10-2024 | -93.66 | 169 | 40 |
| 10 | Nupur Recycler | 1:2 | 20-03-2024 | 74.5 | 122 | 06-09-2024 | 136.89 | 170 | 118.55 |
| 11 | Paisalo Digital | 1:1 | 20-03-2024 | 68.35 | 86 | 10-04-2024 | 448.83 | 21 | 61 |
| 12 | Advani Hotels | 1:1 | 20-03-2024 | 76 | 65 | 04-06-2024 | -69.51 | 76 | 73.6 |
| 13 | Kesar India | 6:1 | 19-03-2024 | 501 | 1121 | 30-09-2024 | 231.64 | 195 | 1065 |
| 14 | Rama Steel Tube | 2:1 | 19-03-2024 | 15.25 | 16.52 | 06-09-2024 | 17.78 | 171 | 14.84 |
| 15 | Guj Amb Exports | 1:1 | 16-03-2024 | 190 | 125 | 25-09-2024 | -64.70 | 193 | 126 |
| 16 | M K Proteins | 2:1 | 15-03-2024 | 13 | 9.19 | 01-10-2024 | -53.49 | 200 | 9.19 |
| 17 | FIEM Ind. | 1:1 | 28-02-2024 | 1204 | 1750 | 30-09-2024 | 76.99 | 215 | 1731 |
| 18 | DRC Systems | 2:1 | 27-02-2024 | 22.75 | 31 | 19-06-2024 | 117.14 | 113 | 25.38 |
| 19 | Rajshree Polypack | 2:1 | 26-02-2024 | 48.25 | 59.75 | 05-03-2024 | 1087.44 | 8 | 40.55 |
| 20 | MAS Financial | 2:1 | 22-02-2024 | 338 | 275 | 08.08.2024 | -40.50 | 168 | 288.85 |
| 21 | SG MART | 1:1 | 22-02-2024 | 581 | 360 | 16.08.2024 | -78.89 | 176 | 418.7 |
| 22 | LOGICA | 5:1 | 21-02-2024 | 280 | 306 | 23.02.2024 | 1694.64 | 2 | 250 |
| 23 | Choice International | 1:1 | 20-02-2024 | 289 | 478 | 01-10-2024 | 106.56 | 224 | 478 |
| 24 | KPIGREEN | 1:2 | 15-02-2024 | 702 | 1099 | 12.08.2024 | 115.32 | 179 | 855 |
| 25 | K.P. Energy | 2:1 | 12-02-2024 | 395 | 498 | 07.05.2024 | 111.97 | 85 | 479 |
| 26 | Gourmet Gateway | 2:1 | 12-02-2024 | 55 | 18.58 | 16.09.2024 | -111.38 | 217 | 25.84 |
| 27 | Shreeji Translogistics | 1:3 | 08-02-2024 | 39.43 | 22.37 | 20.08.2024 | -81.40 | 194 | 23 |
| 28 | Shreeoswal Seed | 1:5 | 02-02-2024 | 49 | 24 | 05.06.2024 | -150.18 | 124 | 26 |
| 29 | Network People | 2:1 | 02-02-2024 | 976 | 3512 | 27.08.2024 | 458.17 | 207 | 2613 |
| 30 | Sandur Manganese | 5:1 | 02-02-2024 | 465 | 606 | 20.06.2024 | 79.62 | 139 | 496 |
| 31 | Salasar Tech. | 4:1 | 01-02-2024 | 28 | 34 | 07.02.2024 | 1117.35 | 7 | 19.68 |
| 32 | SBC Exports | 1:2 | 19-01-2024 | 28.7 | 36.84 | 16.09.2024 | 41.24 | 251 | 34 |
| 33 | MK Exim | 1:2 | 17-01-2024 | 121 | 64 | 06.08.2024 | -85.12 | 202 | 93 |
| 34 | Newgen Software | 1:1 | 12-01-2024 | 817 | 1414 | 27.09.2024 | 102.98 | 259 | 1318 |
| 35 | Allcargo | 3:1 | 02-01-2024 | 90 | 60 | 14.08.2024 | -54.07 | 225 | 66 |
Effect
of Bonus Share Issuance on Stock Price
The
key takeaway from the analysis is that while bonus issues can have a
significant short-term impact on stock prices, buying stocks solely
because of an impending bonus issue is not a reliable and afvisable
investment strategy. Here\’s why:
1.
Bonus Issue Doesn\’t Guarantee Gains:
Mixed
Performance: In this dataset, some stocks experienced exceptional
gains post-bonus e.g., LOGICA( 1694%) , Salasar Tech. (1117%)
Rajshree Polypack(1087%) , Network People(458%) , while others
performed poorly (e.g., Naapbooks, Shreeoswal Seed, Sunrise Efficient
Marketing).
Negative
Returns: Stocks like Naapbooks (-465.64%), Sunrise Efficient
Marketing (-93.66%), and Shreeoswal Seed (-150.18%) delivered
significant losses post-bonus. This shows that receiving a bonus
doesn\’t guarantee a stock price increase.
2.
Short-Term Speculation Can Be Risky:
While
some stocks, such as LOGICA, shot up immediately after the bonus and
delivered rapid returns, others took much longer (e.g., Network
People took 207 days to reach its peak).
Holding
Period: Investors aiming for short-term gains might see mixed
results. For example, some stocks reached their peak prices within
just a few days (LOGICA in 2 days, Rajshree Polypack in 8 days),
while others took several months (Kesar India in 195 days, Newgen
Software in 259 days).
If
an investor buys a stock solely for a bonus and holds it for the
short term, they may or may not achieve quick gains. It depends on
market sentiment, the company\’s fundamentals, and external factors
affecting the stock.
3.
Bonus Issue is Often Already Priced In:
Price
Adjustments: Typically, the price adjusts downward after a bonus
issue because the number of shares increases, reducing the value of
each share proportionately. The company\’s market capitalization
remains the same, so the bonus doesn\’t increase the intrinsic value
of the stock.
Speculative
Surge: Some stocks experience a surge due to short-term speculative
demand post-bonus, but this is not sustainable for every stock. In
several cases, stocks actually underperform in the long term,
suggesting that the pre-bonus price was inflated due to speculation.
4.
Fundamentals Matter More:
In
the long run, the company\’s fundamentals (earnings growth, revenue,
management quality, etc.) are more important than short-term bonus
issues. For instance, companies like Anup Engineering and Newgen
Software, which have strong fundamentals, saw their prices increase
over time despite being in a volatile market.
5.
Sell Quickly or Hold?
Short-Term
Gains: If the strategy is purely speculative and based on market hype
around the bonus, selling shortly after the bonus issue could lock in
quick gains (like what we saw with LOGICA, Rajshree Polypack, and
Shukra Pharma).
Risks
of Holding Too Long: Holding for the long term without evaluating the
fundamentals can lead to significant losses, as seen with stocks like
Naapbooks, Shreeoswal Seed, and Gourmet Gateway
Volatility:
Post-bonus periods can be highly volatile, and the best strategy
depends on timing and understanding of market trends.
Conclusion:
Should
Bonus Be the Sole Reason to Buy?
No,
bonuses alone shouldn\’t be the sole reason to buy a stock. A bonus
issue is often accompanied by speculative moves, but without solid
fundamentals or long-term growth potential, such stocks can under
perform in the long run.
Should
You Sell Soon After the Record Date?**
For
short-term gains: Yes, if the goal is to capitalize on market
momentum, selling within a short period post-bonus (like within a
week to a month) could yield returns in some cases. However, this
involves high risk and may not always work out, as shown by the
negative performances of several stocks post-bonus.
For
long-term gains: Investors should focus on a company\’s overall
potential, not just its bonus. Holding stocks with solid
fundamentals, rather than chasing bonuses, is usually a safer
strategy for sustained returns.
In
summary, investors should evaluate both the company\’s long-term
potential and the market\’s reaction to the bonus. Using the bonus as
a short-term trigger for buying might work occasionally, but it isn\’t
a consistently reliable strategy.