Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
A merger, a bonus & more... - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 25, 2008

    A merger, a bonus & more...

    • Two key announcements marked the latest weekend for India Inc. First was the announcement of a proposed mega-merger between HDFC Bank and Centurion Bank of Punjab. You shall read more on the same on our website later today. The second announcement, which was made yesterday, was the 3:5 bonus issue of equity shares from Reliance Power. The company has proposed to issue 3 bonus shares for every 5 shares held by non-promoter shareholders. In effect, this shall reduce the cost price for those retail shareholders who were allotted shares in the company as part of the IPO process, from Rs 430 to Rs 269. For institutional investors, who were issued shares at Rs 450, the effective cost price now stands at Rs 281.

      Thus, from a retail applicant's perspective, at the current market price of Rs 417, a loss of 3% (from the original cost of Rs 430) has suddenly transformed to a gain of 55% (over the adjusted cost of Rs 269)! What is more, one of the promoters (AAA Ventures, controlled by Anil Ambani) has shown its 'gratitude' by not issuing bonus shares to itself and rather diluting its shareholding to reward non-promoter shareholders. AAA Ventures has also simultaneously announced a voluntary contribution of 2.6% of its shareholding in Reliance Power to Reliance Energy (the other promoter), to protect the company from any dilution of its existing 45% stake in Reliance Power, as a result of the bonus proposal. Accordingly, Reliance Energy's stake in Reliance Power will be maintained at the existing level of 45%. Overall, it seems nothing more than a face-saving exercise from the promoters consequent to the stock's poor performance after its listing since a couple of weeks ago. Bonus shares from a company that will still have zero operating revenues for the next three years are not really bonus in their true sense!

    • As the US economic performance asks for another rate cut from the Federal Reserve, central bankers in another economic behemoth - China - plan to stick with a tight monetary policy (hold interest rates high). This is on the back of concerns of inflation rate spiraling into a higher orbit. As a matter of fact, inflation in China has accelerated to the quickest pace in more than 11 years after the worst snowstorms in half a century have disrupted food supplies in that country. Food prices have soared 18% after blizzards paralyzed transport systems and destroyed crops. The Chinese government faces the challenge of curbing inflation without derailing the expansion of the world's fastest-growing economy, which is expected to grow at a double-digit rate this year as well (after a 11.4% YoY growth in GDP in 2007).

    • Asian markets are trading mixed currently. While Hong Kong and China are down marginally, gains are being witnessed in Japan and Singapore. As for the Indian stock market, these closed last week amidst weakness. Growing concerns over an imminent US recession cast a shadow over the benchmark indices, with the BSE-Sensex and NSE-Nifty ending the week with losses of 4.2% and 3.6% respectively. As concerns of a considerable slowdown in the US economy gathers steam, the fact that emerging markets like India will be impacted, though not directly, cannot be denied. While India is not largely impacted by a trade slowdown from the US, as we are not a major exporters to that country, the fact that our equity markets receive a large part of foreign inflows from US investors (directly or through the Mauritius route), any such slowdown could be detrimental for Indian stockmarkets, though strictly in the short to medium term.



    Equitymaster requests your view! Post a comment on "A merger, a bonus & more...". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)