73 companies have announced bonus issues so far in 2022, the second highest since 2010 as Indian companies are looking to reward loyal investors after a good performance post the COVID-19 pandemic, Economic Times reported.
Corporate profits surged 48% in FY22, lifting the corporate profit-to-GDP ratio to 4.3% from a low of 2.2% in FY20. Banks, financial services, insurance (BFSI), IT, energy, and metals led the recovery.
Bonus shares are additional shares a company gives free to its existing shareholders based on the number of shares they hold. For instance, a company could give one bonus share for every share held or two bonus shares for every share owned by the investor.
Indian Oil, Varun Beverages, AU Small Finance Bank, Ajanta Pharma, Nazara Technologies, Minda Industries, Torrent Pharma, GMM Pfaudler, and REC are among 67 companies that have either issued bonus shares or announced record dates for considering expansion of the equity base through bonus stock. The record date is the cut-off set by the company to compile the list of shareholders eligible for the bonus shares.
Further, six more companies, including Sonata Software, have called board meetings to consider bonus shares, taking the total to 73.
Changes in tax rules from April 1, 2023, to prevent bonus stripping have also encouraged bonus announcements.
Bonus stripping is a common method used by promoters of smaller companies or investors to save capital gains tax. Investors or owners sell shares after a bonus issue when the share price falls. Since the original shares are sold at these lower prices, investors book a lower capital gain or even a loss in some cases, helping save tax. Shareholders then keep the bonus shares issued.
The new tax rules provide that original shares have to be held for a certain minimum period to claim tax benefits from bonus shares.
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