Bonus Issue

A bonus issue is a free allotment of additional shares to existing shareholders in a fixed ratio (for example 1:1 — one new share for every share held), made by capitalising the company's accumulated reserves. It increases the share count without changing the value of the business.

Mechanically, a bonus converts reserves on the balance sheet into share capital. Nothing about the business changes: revenue, profit and the value of your holding are the same the day after — you simply hold more shares at a proportionately lower price. A 1:1 bonus roughly halves the share price on the ex-date because the same company is now divided into twice as many shares.

Companies issue bonuses to improve liquidity and make the per-share price more accessible to retail investors, and as a signal that reserves are healthy and management is comfortable servicing a larger equity base with future dividends. In India the board announces the bonus with a ratio and record date; under SEBI's streamlined timeline, bonus shares are credited and available to trade within about two working days of the record date.

Watch two things: eligibility (you must own the shares before the ex-date to receive the bonus) and the tax cost basis — bonus shares have a cost of zero with a fresh acquisition date, which affects capital-gains calculations when you eventually sell.

How stocks tend to react

Bonus announcements are often received positively — they are read as a confidence signal and tend to attract retail interest around the record date. But because a bonus changes nothing fundamental, any pop is sentiment-driven; over longer horizons the stock trades on earnings, not on how many pieces the equity is cut into.

MarketPing measures this instead of guessing: every analysed announcement carries the stock's actual price reaction across 14 horizons, and the Reaction Lab aggregates how each category of announcement has historically moved stocks.

Related terms

Educational content, not investment advice. Regulations and tax rules change — verify current rules before acting.