Wednesday, January 25, 2012

KPIT Cummins declares 1:1 Bonus

There can be many reasons for declaring a Bonus.
1)Management wants to make the eq capital base bigger so that they can apply for bigger orders.
2) Maangement is bullish on future.
They have been able to create a niche product which will increase the sales and hence the profitibility.
But I feel that this bonus will do no good in ST , maybe for atleast 1 yr.I may prove wrong but that is what I feel.
The reason I feel it will not do good for investors is, with doubling of eq, the earning will take a beating.The bottomline will become less.EPS will still go further down as eq will double.Unless, KPIT shows exponential growth this year , with eq base becoming bigger, eps will shrink and hence I feel for 1 yr down the line KPIT will be a laggard.With bonus people will have more shares in hands and hence the liquidity will increase.Investor will sell the bonus shares to bookprofit.
Freinds, that is what I always try to write here.Be alert and try to figure out what can be the implications of what is happening in the Co.One need to constantly track Cos where you have invested.Keep track on sectors and try to find out whether that sector is going out of favour and sell stocks and switchover.I can't keep writing for each shares what to do with it.
I may prove wrong about my view in KPIT but I feel switchover from KPIT to something else will be a better idea.Rest all depends upon individuals......

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