News: Indian cos feed investor optimism with bonus shares

(RTR 26/04/2006) Mumbai - Indian companies have started rewarding their shareholders with bonus shares on expectation of sustained earnings growth and to improve liquidity in their shares, analysts said on Wednesday.

They said peer pressure within the sector and high absolute value of share prices, leading to lower investor interest, were also reasons for bonus announcements by companies.

In April alone 10 companies, including leading software stars like Infosys Technologies Ltd., Satyam Computer Services Ltd. and Tata Consultancy Services Ltd., have announced plans to issue or consider bonus shares.

"Announcing of bonus issues by large companies can be said to be validation of sustainability of their earnings", said Sandeep Shenoy, strategist, Pioneer Intermediaries Ltd.

Infosys expects its earnings per share to rise 26-28 percent in the April-June quarter from a year earlier, a growth rate it expects to sustain through the year.

Similarly, Satyam expects earnings per share growth of 18-20 percent, to 36-36.6 rupees, for the year to March 2007.

Higher earnings accretion leading to bloated book value has also forced companies to announce bonus shares, Shenoy said.

But some analysts said the higher priced shares was one of the main factors for the issue of bonus shares.

"Investors feel more comfortable dealing with the stocks that have lower absolute value," said V.K. Sharma, head of research, Anagram Stock Broking Ltd.

"After a bonus issue the stock price falls and liquidity increases as the number of shares increase".

Some market participants also said companies were under peer pressure to use bonus issues to reward shareholders.

"After Infosys announced the bonus, TCS followed it immediately without having it on the agenda of its board meeting," said Rakesh Choudhari, chief operating officer, Keynote Capitals Ltd. "For software companies it is just a peer pressure."

"I think the bonus issue was nothing driven by any outside influence other than making sure our shareholders were happy with the returns we gave them," S. Ramadorai, chief executive officer of TCS had said in an interview after TCS made its results public.