Bonus Shares Explained with Real Case Studies (Bajaj Finance, Infosys, Asian Paints, HDFC Bank)

Bonus Shares Explained: Meaning, Impact & 4 Case Studies Including Bajaj Finance

Bonus shares are one of the most rewarding corporate actions for shareholders, but they can also be misunderstood. Investors often panic when they see the stock price drop after a bonus or stock split, but this drop is only notional. In this article, we’ll explore the complete concept of bonus shares using a blend of theoretical understanding and practical case studies, including Bajaj Finance, Infosys, Asian Paints, and HDFC Bank.

Understanding the Fundamentals of Bonus Shares

A bonus share is a free share of stock given to existing shareholders in proportion to the number of shares that the shareholder already owns. These shares are issued by a company when it accumulates substantial profits and wants to distribute them without paying cash dividends. Bonus shares increase the issued share capital of the company but not the net worth. They are issued out of the free reserves built from genuine profits earned by the company.

Key Characteristics of Bonus Shares

• No cash is received by shareholders.
• The face value remains the same, but the number of shares held increases.
• Market price adjusts post bonus issue.
• Issued from company’s retained earnings.

Psychological Impact on Retail Investors

Retail investors often get excited by announcements of bonus shares and stock splits because these actions make expensive stocks appear more affordable. This perceived affordability increases demand and attracts more retail participation. However, investors must look beyond this illusion and evaluate the company's fundamentals and long-term performance.

Difference Between Bonus Shares and Stock Splits

Parameter	Bonus Shares	Stock Split
Definition	Free shares issued from profits	Division of existing shares into smaller units
Face Value	Remains the same	Gets reduced
Capital Structure	Increases	Unchanged
Accounting Impact	Reserves decrease	No impact on reserves

Case Study 1: Bajaj Finance Bonus Share & Stock Split (2024)

In June 2024, Bajaj Finance announced a 1:1 bonus issue along with a stock split in the ratio of 1:5. This means every shareholder received 1 additional share for each share held, and each share was split into 5. On June 13, 2024, Bajaj Finance shares adjusted accordingly, causing the stock price to drop nearly 90% on paper. However, this wasn’t a loss—just a proportional adjustment to reflect the increased number of shares.

Before & After Snapshot:

Metric	Before	After
Shares Held	1	10 (Post Bonus + Split)
Price Per Share	₹7,000	₹700
Total Value	₹7,000	₹7,000

This case demonstrates how market value remains unchanged post-adjustment, and there’s no loss to investors.

Case Study 2: Infosys Bonus History

Infosys is a classic example of wealth creation through consistent bonus issues. The company has rewarded shareholders with multiple bonus shares since its IPO. Some notable bonus issues:

• 1994: 1:1 bonus
• 1997: 1:1 bonus
• 2004: 3:1 bonus
• 2015: 1:1 bonus
• 2018: 1:1 bonus

Investors who held Infosys stock from the early 90s saw exponential growth in their number of shares, leading to compounding returns, without additional investment. This is a textbook example of long-term wealth creation.

Case Study 3: Asian Paints Stock Split and Bonus

Asian Paints has been another consistent performer in the Indian stock market. It issued bonus shares in:

• 1985: 1:1 bonus
• 1995: 1:1 bonus
• 2000: 1:1 bonus

Along with bonus issues, Asian Paints also split its shares, making them more affordable. As of 2024, its adjusted price makes it accessible to even small retail investors while rewarding long-term holders with high returns.

Case Study 4: HDFC Bank – Growth and Bonus Strategy

HDFC Bank issued a 1:1 bonus in 2011 and has grown tremendously ever since. The bank’s strategy focuses on both rewarding investors and maintaining strong fundamentals. It has never issued stock splits but focuses on operational excellence to boost stock performance. HDFC Bank is a great example of how companies with strong fundamentals can use bonus issues judiciously to increase shareholder value.

Investor Checklist: What to Do When a Company Announces Bonus Shares

• Check the record date and ex-bonus date
• Understand the bonus ratio (e.g., 1:1 or 2:1)
• Don't panic if the stock price drops post-issue
• Evaluate long-term prospects, not just the bonus
• Rebalance your portfolio if needed

Benefits of Bonus Shares

• Improves stock liquidity
• Signals company’s confidence in future growth
• Enhances shareholder value without cash outflow
• Can attract retail investors by reducing price per share

Limitations of Bonus Shares

• Does not improve fundamentals
• May create artificial demand in short term
• Post-bonus price may stagnate for a while

Conclusion: Should You Chase Bonus Shares?

Bonus shares are not a reason in themselves to buy a stock. While they do increase the number of shares held, they don’t increase the underlying value of the company. Investors should focus on the company's earnings, consistency, management integrity, and business model. Use bonus announcements as opportunities to study and reinforce long-term investment strategies.

Remember: A bonus share is a reward, but not a shortcut to wealth. Real wealth is created by holding fundamentally strong stocks over time.