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Bonus & Right Shares: Is gain or loss ?

Published by Octron on September 7, 2008

Every now and then these days you hear companies annoucing bonus shares, right shares, etc instead of giving them dividends. While, people holding the company share just runs towards the banks to apply for that. While people who are lacking those shares, just pays everything they have to own those company normal shares, so that they could also get benefit of bonus and right shares ?

Today players of NEPSE seems to be more driven towards such scrips than stable companies which yield stable dividend.

Bonus and Right shares just makes the market dirty and at the end of the day its NOT AT ALL fruitful for the shareholders itself. As soon as new lot of share distribution starts, EPS (Earning per Share) decreases as´now there are more number of shares sharing same earnings.

Just before the annoucement of such kind of shares, the market gets a swing, the price of such company just increases upward, book value and financial status of company takes back seat for such desperate buyers. Recent example Infrastucture Development Bank Limited (IDBL), before any official annoucement of rights share, people are madly grabbing its shares from Rs. 400 till Rs. 2200 within last 4 months just on the basis of speculation.

Infrastructure Development Bank Limited (IDBL) Last 90 Days Trading
S.No.	Date	Total Transactions	Total Traded Shares	Total Traded Amount	Max. Price	Min. Price	Close Price
1	2008-09-07	120	1,910	3,971,830	2209	2040	2065
2	2008-09-04	111	2,350	5,223,280	2260	2160	2171
3	2008-09-03	81	1,430	2,979,560	2121	1967	2121
4	2008-09-02	11	530	1,003,910	1929	1789	1929
5	2008-08-31	2	160	280,640	1754	1754	1754
6	2008-08-28	15	220	376,570	1720	1642	1720
7	2008-08-27	5	100	150,780	1564	1450	1564
8	2008-08-19	5	100	142,200	1422	1422	1422
9	2008-08-11	8	160	216,800	1355	1355	1355
10	2008-08-04	1	10	13,550	1355	1355	1355
11	2008-08-03	5	50	64,550	1291	1291	1291
12	2008-07-30	3	30	37,260	1266	1218	1266
13	2008-07-29	4	40	46,400	1160	1160	1160
14	2008-07-28	1	10	11,050	1105	1105	1105
15	2008-07-27	21	250	261,930	1053	1005	1053
16	2008-07-22	5	100	95,800	958	958	958
17	2008-07-21	2	40	38,320	958	958	958
18	2008-07-20	3	50	46,280	940	904	940
19	2008-07-16	8	160	141,920	887	887	887
20	2008-07-09	33	640	567,510	887	870	887
21	2008-07-08	3	30	25,270	853	837	853
22	2008-06-05	42	860	686,280	798	798	798
23	2008-06-04	40	810	643,770	798	740	798
24	2008-06-02	24	530	382,100	726	673	726
25	2008-06-01	4	70	45,120	660	624	660
26	2008-05-22	17	170	104,040	612	612	612
27	2008-05-15	3	30	17,490	583	583	583
28	2008-05-14	3	50	28,710	583	561	583
29	2008-05-13	20	400	217,700	550	500	550
Grand Total		600	11,290	17,820,620

So as soon as rights shares are distributed, the price starts gradually coming down and this time it might come down much more tha previous start price as more number of scrips are floating than before. So, supply will definitely be higher than the demand.

Why would anyone want to buy scrip which was just Rs. 500 four months back at 2200, if he is not going to get any benefit at least for a year ?

So price will sharply fall down until it reaches reasonable point.

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