Shareholders Wealth increases merely by 17.42% due to BFIs Capital Expansion

It was 7th Shrawan, 2072 when newly appointed governor of Central bank, Mr. Chiranjibi Nepal unveiled the monetary policy for the fy 2072/73. The policy consisted a point that directed the BFIs to increase their paid up capital by 4 folds. The commercial banks with the paid-up capital of 2 arba were bound to increase it to 8 arba within the next couple of years. Similarly, Development banks and finance companies of all categories were directed to hike their capital as stated in the policy. 

The news brought an excitement in the capital market. Where Investors considered it as a buying opportunity, bankers started raising voices regarding the deadline. Some experts were seen skeptical regarding its overall impact. Amidst the mixed scenario, the market saw a boom. The benchmark Index on the very next day surged by nearly 40 points to close at 1003.38. 

The broker houses were full of investors wanting to purchase shares of their choice. The Scrips of BFIs were at a high demand with stocks like Nabil and Standard Chartered trading above Rs 2000. On the same day, an investor Mr. Neupane (Supposed) decided to invest 1 lakh each on the stocks of 25 different commercial banks trading on that day. He, thus, ended up buying stocks at different quantity at the below stated prices.     

Later during the two year period, he was offered bonus shares by different companies, some even declared cash dividend. However, majority of the companies floated a hefty amount of right shares. The cash dividend provided by the companies helped in decreasing the amount of total Investment.

Mr. Neupane initially made an investment of Rs 25 lakhs. The right offerings made by the companies increased the total investment by 2,67,300 . Thus, increasing the total initial investment to Rs 27,67,300 .However, the cash dividend provided by various comanpies decreased his overall initial investment.by 14,973.

On analyzing the current market price of all the units owned by Mr. Neupane, his total investment now values Rs 32,32, 272 which is 17.43% more then the money poured by him in the stocks initially and through right.

This Analysis is done to understand the impact of Capital Expansion upon Investors.