Issuing bonus shares definitely increases the liquidity of the stocks but it doesn’t protect stock from manipulation if it’s a small caps counter. I have seen small caps stocks hitting upper circuit after announcement of bonus issues and there is no other possible explanation of that other than the fact that someone wants to create excitement around the stock.
As far as I’m concerned issuing bonus shares is unnecessary use of company’s reserves in the service of feel good optics. A stock will do well whether it’s listed at 50 INR or 50000 INR, or if its free float is 10% of 50%, as long as the company is showing earning growth.
So you are right in stating that motives for bonus issues can be hard to interpret. But when a bonus issue comes right after 6-8x rally in a stock in a very short time, I think it’s time to be careful because this could be the last squeeze management is applying to get whatever juice is left out in the stock.
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