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Market rally paves way for stock split

Fourteen companies, including Sun Pharma and Dabur India, have so far, this month, resorted to a stock split or bonus issue to make their shares more affordable for retail investors.

twitter-logoPTI | October 5, 2010 | Updated 13:10 IST

Hoping to cash in on the bull run of domestic makets that has pushed the Bombay Stock Exchange benchmark Sensex past the 20,000-level, listed entities are increasingly resorting to bonus issues and stock splits to expand their equity base.

As many as fourteen companies, including Sun Pharma and Dabur India, have so far, this month, resorted to a stock split or bonus issue to make the company shares more affordable for retail investors.

"Whenever the broader market rallies, individual shares become costlier, so the companies prefer the stock-split method to prevent share prices from going beyond the reach of the investors," SMC Capitals Equity Head Jagannadham Thunuguntla said.

In tandem with the soaring market, companies' profits have also risen, which the firms want to share with their investors by offering bonus shares, he added.

Sun Pharma had on Friday announced that its board has approved splitting the company's shares in the ratio of 1:5, resulting in every equity share of Rs 5 face value being divided into five shares of Re 1 apiece.

FMCG major Dabur India, too, came out with bonus stock options. Two-wheeler giant Bajaj Auto also gave bonus shares to its shareholders.

On similar lines, consumer goods company Britannia Industries also went for a stock split. Its stockholders received five equity shares of Rs 2 face value in lieu of every equity share of Rs 10 face value.

Echoing Thunuguntla's opinion, CNI Research CMD Kishore P Ostwal said: "The recent market rally is throwing open the opportunity of stock split and bonus issues for the big corporates, as they are in a better financial state to share their profits with the shareholders,"

According to the market buzz, aluminium producer Nalco and Shipping Corporation of India are also likely to take the stock split or bonus issue route. Oil and gas major ONGC may opt for a similar route.

Marketmen attribute the rising number of companies going in for these options to the positive momentum in the broader market, which is expected to continue for days to come, driven by strong foreign fund inflows and robust domestic growth.

The broader benchmark Sensex has gained a whopping 10.10 per cent so far this month, to 20,045.18 at the end of Friday's trade on BSE.

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