The Hindu Business Line : `Bonus shares by tech cos to have short-term impact'

However, the positive sentiment due to the bonus issue is likely to be in the short term since earnings momentum or P/E multiples will not be affected, say analysts.

The increase in the floating stock will, however, meet a long-felt need with regard to IT sector stocks, they say.

"The valuation will not change because of the issue of bonus shares,'' said Mr Dheeraj Sachdev, portfolio manager, ASK Raymond James. Bonus offers by IT majors can increase the liquidity in the market and in the short-term will be positively felt by the market, he said.

However, in the long term, this is likely to have no impact as the business growth and earnings momentum and competitiveness of the company will have a bigger role to play in increasing wealth for the shareholder.

Mr Chetan Shah, an analyst with Quantum Securities agrees that the consideration of bonus by Wipro will have no long-term impact. Valuations will not change and the present value of future earnings continues to remain the same, he said, adding that although there might be short-term positive feeling, the real impact will be in terms of increased floating stock.

"The announcements by Wipro, Infosys to consider a bonus issue and the 1:1 issues by Mphasis BFL look like the IT companies would like to increase the floating stock,'' Mr Sachdev said.

However, in the case of Mphasis, although the bonus announcement was greeted positively by the market, the results, which fell below market expectations, showed up in the lower closing price for the Mphasis stock, he said.

Mr Shah says, "Traditionally, the IT sector, given the low capital intensity of the business, has had lower equity base and low levels of floating stock. For instance, Wipro's chairman, Mr Azim Premji, holds 195 million shares to the 37 million floating shares.

Infosys has a floating stock of 48.77 million shares compared with 17.69 million by the promoters and the increase in the floating stock will increase the liquidity in the market and will be welcomed by investors."

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