Reliance Industries (RIL), India’s largest company by market capitalisation, declared bonus shares in the ratio of 1:1. This means that every share held will get another share.

In the case of a bonus issue, the company converts reserves into share capital and, in this process no additional value is created. Therefore, a bonus issue should not be treated as the word bonus is treated elsewhere.

Even in the case of RIL, the stock price did not react in a big way on either side. As we went to press, RIL was trading at Rs 2,178.20, compared to Rs 2,099 on the day of the announcement (7 October). In case of bonus shares, technically, the share price falls on the ex-date as the newly issued shared reduce the earnings per share. However, in some cases, the price does move up as the stock becomes more affordable and accessible to a larger range of investors.

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Safe Flight

The improving risk appetite in the global market has not affected demand for gold, the traditional safe haven. In international markets, after crossing the psychological $1,000 per oz (ounce) in the beginning of October, gold continues to move up. As we close this issue, gold has touched an all time high of $1,062 per oz, a gain of about 28 per cent from a year back.

In India, too, gold has gained about 20 per cent. The primary reasons fanning the rally are said to be a weakening dollar, inflationary concerns and investors’ need for diversification. The rise in gold prices may continue. Says Tejas Seth, senior research analyst at SMC Global Securities, in a research report: “Gold prices at $1,100 per oz is our first target and then $1,200 per oz, most likely in 2010.”

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New Interest

An effort to clear its outstanding debt of $700 million, Tata Motors raised $750 million through a combination of two instruments—global depository receipts (GDRs) and convertible notes, worth $375 million each.

The company issued 29,904,306 new shares in the form of GDRs at the price of $12.54, and will be listed on the Luxembourg Stock Exchange. The deal was upsized from $600 million in the light of strong investor interest. According to a company release, the book was closed in less than an hour from launch and generated a demand of $1.25 billion. The stock’s price in India, however, has corrected from Rs 580 on 1 October to Rs 572.65 on 14 October. Investors fear that fresh issue of shares may dilute earnings.

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IPO Alerts

Companies to file draft offer documents with the market regulator Securities and Exchange Board of India (Sebi), between 1 and 13 October 2009

• Cantabil Retail India
• DB Realty
• DQ Entertainment
• Emaar MGF Land
• Glenmark Generics
• Goenka Diamonds and Jewels
• IL&FS Transportation Networks
• Kumar Urban Development
• Man Infra Construction
• Mandhana Industries
• Midfield Industries
• Rosmerta Technologies
• Sahara Prime City

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On the Curve

After a steep run up in the prices in the last few months, markets decided to consolidate this fortnight. While the benchmark Sensex ended on a flat note, the defensive FMCG index moved up by about 10 per cent