Effect of Bonus Issue on Share Value

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A. Prithvi Surya (Querist)

25 May 2011 Dear Experts,
When a listed company issues Bonus shares say in the ratio of 1:1 and suppose the Price of the Share in the stock market before Bonus Issue is500/-, does the share value in the stock market after the bonus issue become250/-??

Kindly explain the logic behind your answer....

Thanking you in advance

Prithvi

CA PARAS BAFNA

CA PARAS BAFNA (Expert)

20 June 2011 Basically shares are issued out of the reserves. The price of share is 500 when the No of shares in a company were X.

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After bonus issue nothing changes in the company except the no of shares . No of shares will become 2X.

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The worth of 1 share was earlier Rs. 500/-
after bonus worth of 2 shares become Rs. 500/-.

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In this way after bonus share price will become half.

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But it does not remain exactly half. Shares of good companies may be quoted higher than 250/- ... say 280 also. This is due to the fact that liquidity in the shares increases number of trades also.

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