Does a Bonus Issue Guarantee Outperformance?

Understanding Bonus Issues

The announcement of bonus shares can have a beneficial impact on a company’s stock price and market sentiment in the short term. However, our study indicates that the long-term scenario may be totally different 

Recently the Gujarat government issued a new policy regarding the minimum amount of dividend distribution and bonus shares for its state public sector undertakings. In the wake of this development, most of the public listed companies from Gujarat saw their stock price jumping by more than 10 per cent and some even more than that. Out of the many triggers that retail investors look for before investing in a share it is the bonus announcement by companies. Many a times it is considered as a positive trigger for the companies. Year-till-date 35 companies have already announced their results and in the last calendar year 155 companies have announced a bonus issue.