Right, not always Right !!!

Running to the brokers office to purchase the shares of a company just because it has announced right issue, is not a rare scenario in case of our market. Lack of rationality or desire for quick profit, whatever the reason maybe, people end up buying stocks at high price just to grab the right. Unlike bonus shares, right shares doesn't come for free neither increase the share holders wealth. But inspite of all this, investors are ready to pay a huge chunk of money to get the shares that provide extra shares at a face value.

We don't need to provide a specific example of people paying high price of a company just for the right, as the incident takes place very frequently in our local bourse. But it's not that right shares are always loss making for investors. One needs to properly analyse the financial health of the company before one jumps into it. Getting the shares of a fundamentally sound company at a reasonable price and then getting extra shares at a face value can however increase shareholders wealth in a long run. In this article, we will revive the incident of capital expansion policy announced by then newly appointed governor. And the decisions made by the investors. 

As the governor unveiled the monetory policy for the fiscal year 2072/73 and directed BFIs ti increase their capital by 4 folds, investors rushed to the brokers on the very next day, to purchase the shares of their choice, at any available price. But looking at the incident from a macro view now, not all the purchases made then, have benefitted the shareholders. 

Had someone purchased the shares of these companies soon after the announcement of monetary policy, are in loss as of now.        

Investor purchasing shares of NCC Bank 2 years before would have grabbed it for Rs 470 per unit. Investing 1 lakh at that times would have allowed him to purchase 213 units of shares. The only return investor received was bonus shares out of the profit from fy 2071/72. Currently, he will have 247 units shares of NCCB with a market price of Rs 285.

Similarly, purchasing shares of Civil bank back then would put him in a loss of 23.63%. Companies like BOKL, MBL, Prabhu also would have taken away the principle amount from the investor. So the question now arises, did the right share just cost them Rs 100 ?