Infosys bonus issue and its effect
By rajesh sharma |
6/15/2015 3:24 PM Monday
Share price of Infosys closed on Friday, 12th June 2015 at Rs 1975 but on Monday, 15th June 2015 opened at Rs 977 in NSE. In this article we try to understand, why this happened and its effect on the company.
Earlier, on 25th April 2015, India's second largest IT exporter, Infosys announced bonus issue 1:1, i.e. one equity share for every one-equity share held and final dividend of Rs 29.50 per share, which is equal to Rs. 14.75 per share after bonus issue.
Bonus share are free shares given to the existing shareholders of the company. A bonus issue is taken as a good sign towards future performance of the company. In other words we can say that, management is confidant of being able to increase its profitability to distribute dividends to the increased equity of the company, in future. When a bonus issue is announced, the company also announces a record date for the issue. The record date is the date on which the bonus takes effect, and persons holding shares on that date are entitled to the bonus. After the announcement of the bonus but before the record date, the shares are referred to as cum-bonus. After the record date, when the bonus has been given effect, the shares become ex-bonus.
Friday, 12th June 2015 closing share price of Infosys was Rs 1975. Monday, 15th June 2015, price of share adjusted for the bonus issue and opened at Rs 977 (approximately Rs 1975 divided by 2). 15th June 2015, which is also known as ex-date of bonus and dividend announcement, as its record date is 17th June 2015. Ex-date is the day before two working days of the record date. If you purchase a stock on its ex-bonus or dividend date or after, you will not receive bonus shares or the next dividend payment.
As a result of bonus issue, the number of outstanding Infosys shares will also double and its lot size in derivative market also double. But, their holding (in terms of percentage) in the company remains the same. Also, earnings per share (Earnings Per Share = Net Profit / Number of Shares), falls as more share are outstanding now. The face value of Infosys shares will remain Rs 5 per share post the bonus issue. A bonus issue increases the liquidity of shares in the market and results in increased investor base. Bonus shares are issued from retained earnings, as on 31st March 2015, Infosys's share capital was Rs 572 crore, after bonus issue it will be doubled and the similar amount will be deducted from its retained earnings, which stood at Rs 54191 crore as on 31st March 2015.
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