The Hindu Business Line : Tech Tools

It is observed that when a company declares bonus shares, the stock price falls by 50 per cent or more on ex-bonus date from the last trading and then starts rising.

In this backdrop, is it advisable to enter Sundaram Fasteners and Dabur at current price levels? I have a one-two year perspective. Krishnamurthy

When a company declares a bonus, the stock price declines on the ex-date to adjust for the expanded equity base, based on the bonus ratio. The reason that the share price of a company often rallies after it goes ex-bonus is due to the way in which bonus offers alter investor perception about the company.

The fundamentals of the companies issuing bonus shares are perceived as being very sound. Secondly, investors apply linear thinking and expect the company's management to reward the shareholders with more bonus issues in future as well.

This results in the share prices moving up after the share price goes ex-bonus.

Though share prices often move up when they go ex-bonus, it is not a rule that is carved in stone. Depending on the market conditions and the factors influencing the sector in which the company operates, the prices can move lower too.

Take the example of Bajaj Auto that had declared a 1:2 bonus in 1997. The stock price fell 57 per cent in the four years succeeding the issue. Similarly, shares of Tata Chemicals lost 84 per cent in the five years after the shares went ex-bonus in 1995.

On your stock specific queries, Sundaram Fasteners has halted its short-term down move at Rs 73. This is 50 per cent retracement from the high of Rs 94. This seems like a good point to buy this stock with a stop at Rs 70. Price targets would be Rs 128 and then Rs 178.

The Dabur India stock is reversing direction after hitting a high of Rs 117. The stock price is hovering around Rs 100, where the 50-day moving average is positioned.

A slide below these levels can take the price to the next support band that exists between Rs 90 and Rs 95. You can buy the share with a stop at Rs 88. If there is a dip below Rs 90, the price can slip all the way to Rs 73.

I have a demat account with a private bank, which allows online transactions. But due to non-availability of Internet connection I am unable to execute my transactions online.

So, now I want to open an account with a local broker. Please tell me whether it is possible to open more than one demat account, or some other way to do this. Ravindra Singh

Most online brokers have the facility for placing orders through the telephone as well. You can check with your online broker if you can place your orders though the telephone line.

Even if you decide to change your broker, there is no need for you to open a new demat account. The demat account that you were accessing with the online broker can continue to be used with the local broker as well.

SEBI clearly states that the investor need not consider the convenience of his broker while deciding on his demat account.

The laws of our country permit the investor to open more than one demat account with the same depository participant or with different depository participants. You are free to open and operate more than one demat account, if you so desire, provided they are not in fictitious names.

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