Erasing Loses Overnight!!!

Hats off to Reliance Power management for making an unprecedented move and hope the bonus ratio will justify this eulogy. Well, bonus shares will be issued to non-promoters who hold 22.8 cr shares currently ie 10.1%.

If the bonus ratio is 1:1 then the cost of acquisition for retail will be Rs 215 (down from Rs 430) and if it is 1:5 it is Rs 358. The figures for QIB stands at Rs 225 and Rs 375 respectively (down from Rs 450). Last week, the price seemed to have seen support at Rs 350 and most of the fund managers said that they see value at Rs 340-Rs 350 levels. It is only at a bonus ratio of 1:4 will retail investors just, about break even and any ratio more than that would be a real bonus. At ratio of 1:4, retail investors will lose about 1% while QIB will lose 5%. At ratio of 1:3, Retail sees 5% profit on their allotment while QIBs just break even. As the main reason for issuing of bonus shares is to prevent nominal loses, the bonus ratio could be greater than 1:3.

Calculations:
Cost of Acquisition for QIB: IPO~Rs450, 1:5~Rs 375, 1:4~Rs 360, 1:3~Rs 337, 1:2~Rs 300, 1:1~Rs 225
Returns for QIB: 1:5 ~ -8.5%, 1:4 ~ -5.2%, 1:3 ~ 0.3%, 1:2 ~ 11%, 1:1 ~ 41%
Cost of Acquisition for Retail: IPO~Rs450, 1:5~Rs 358, 1:4~Rs 344, 1:3~Rs 322, 1:2~Rs 287, 1:1~Rs 215
Returns for Retail: 1:5 ~ -4.3%, 1:4 ~ -0.8%, 1:3 ~ 5%, 1:2 ~ 16%, 1:1 ~ 48%