MUMBAI, May 14: The fancied Sensex rallied by 88 points from the day's lowest level on Wednesday afternoon. The sole factor which put the stock markets back into the bull orbit was the sudden and surprise announcement of a bonus issue by Bajaj Auto.

The bonus news bucked up the market sentiment. The Sensex finally closed with a gain of 38 points at a time when operators were thinking the market was taking a turn for the worse.

Bonus issue announcements by leading companies have been taking marketmen by surprise these days. Before Bajaj Auto, four companies announced bonus issues in the last fortnight. The surprise bonus candidates were: Century Textiles, Indian Rayon, Maharashtra Scooters and ICDS.

``Now there is an expectation that Reliance may consider a bonus issue. Reliance chairman had hinted at the possibility at the last annual general meeting,'' said a market source.

``Companies are announcing bonus basically to keep the investing public happy. The corporate sector had a bad time in the last financial year (1996-97) as a host of issues like liquidity crunch, high interest rates and demand recession played havoc with the corporate sector,'' said an analyst with a leading foreign investment firm.

Concerned over the fall in profits, companies are eager to maintain their market status, especially the share price level. Brokers are expecting bonus issues from more companies in the coming days.

Analysts were surprised by the bonus issue by Century Textiles. The company actually reported a major fall in profits. This is also the case with Maharashtra Scooters. In order to keep investors happy, companies are using the bonus issue route. This is happening at a time when companies are facing a downturn in sales and profits. As Bajaj Auto chairman Rahul Bajaj said, ``the second half of last year was worse than the first half. I don't know what will happen this year.''

Notwithstanding the poor performance, companies are being forced to shell out more money as MAT (minimum alternate tax) and tax on distributable profits. The interest burden and depreciation provision of companies were higher this year.

It's not only in the case of bonus issues, companies are also declaring high dividends. Century which came out with less than Rs 3 crore profit declared a 60 % dividend.

By annouoncing bonus issues, companies will be in a position to tap the domestic markets. This was not possible in the last two years following the depression in the capital market.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.