Shareholders were happy to reap the rewards. But it also begged the question about why other Indian companies did not have a good record in paying dividends. One of the most sought after demand by the Indian shareholders during any company's annual general meetings (AGMs) is an increased dividend, rather than the historical demand of a bonus issue or a discounted rights issue. As India Inc approaches its `AGM' season, shareholders are expecting more dividend thanks to the `dream' Budget of P. Chidambaram which exempted dividends from being taxed.

Mergers and acquisitions in the Indian industry also helped the shareholders to reap profitsby way of increased dividends in the fiscal 1997-98. The finance bill of 1997 had exempted corporates from deducting tax from dividend income. This was done to avoid double taxation as it was felt that since the corporates are already paying dividend taxes, it was unfair to tax the persons who received the dividend.

Another recent example of a company paying a handsome dividend is cosmetic major Lakme. The company sold off its plants and brands to multinational Unilever's Indian subsidiary, HLL and as the share prices crashed on the bourses, the company decided to give a 600 per cent interim dividend. The offer, however, came with a fine print. Shareholders must pass the resolutions to hive off its businesses to HLL, if they want a higher dividend. Thus, the shareholders of the "shell" company did not had any other choice, but to pass the resolution as contemplated by the Tatas.

As financial results for the fiscal 1997-98 trickle in, the stress is now on giving more dividend rather than doling out bonusissues which is fast becoming redundant. The bonus issues by Bajaj Auto and Century Textiles failed to enthuse the shareholders as it unnecessarily increased the capital base when the corporates were facing a recession. Even some corporates, which have not done well in the previous fiscal, have announced dividends which will have higher dividend pay-out ratio as comapred to the net profit just to keep the shareholders happy. The rest are busy announcing higher dividends.

But there are examples in the corporate history when companies have failed to give dividend despite making public announcement. Orkay, Sol Pharma, IDI and Modistone are few companies which are facing the shareholders ire as the management has failed to distribute dividend due to paucity or diversion of of funds. For example, shareholders of Modistone are a worried lot as their dividends have not come due to mismanagement of company funds by the promoters. The company has not managed to pay dividend over the last five years.

Similarly,Orkay announced a dividend of 10 per cent in it balance sheets, but as the company heads for a liquidation, the shareholders funds have vanished in the thin air. Says a Orkay shareholder: "We waited for more than four years for our dividend cheques... but instead of cheques we have received news that the company sold off its plant to JVG and now Maharashtra State Finance Corporation has filed a case in the Mumbai high court for liquidation."

Multinational corporations are more liberal giving out higher dividends as most of them are able to repatriate more funds out of the country as dividend to the mother company. More than 51 per cent of HLL's dividend is sent being abroad while Colgate Palmolive of United States is getting highest revenue as dividends from its largest foreign subsidiary in India.

Similarly, Nestle India announced a total dividend of Rs 63.6 crore which is the highest distributed by the company and in absolute terms represents an increase of over 80 per cent as compared to 1996. Thus,though Indian shareholders are getting higher dividend, it is the MNCs promoters who have more than 51 per cent stake in these companies which are taking out more funds from India as compared to their investments. Even Philips India which has not done well in the previous year has announced a dividend of 10 per cent, thus making the Indian shareholders and the international promoters overlook the poor results.

Alarmed over the increased dividend paying mentality when the company is going through a bad phase, the financial institutions are now gearing up to spike the dividends of those companies which have not done well and where the promoters are looking at short term interest rather than having a macro view. Says a IDBI official: "We are now playing a more pro-active role and asking the companies to cancel dividends and use that funds for other urgent purposes."

The recent spurt in the software shares is testimony to the fact that it was good dividend paying record which caught the investors' fancy.Companies like Infosys, Satyam Computers and Pentafour are fast replacing the blue chips like ACC, Tisco and Telco. Incidentally, all the former blue chips have pruned their dividend as their net profits have come down drastically.

"Even the pruned dividend from these companies are far above the market expectations... we expected them to reduce the dividend further," says a shareholder.

"Software companies have awarded their shareholders to a great extent. The net profits of the companies are going high and the future is bright. The shareholders are happy with the performance and the dividends," says Bharat Shah, broker of the Bombay Stock Exchange. Due to lack of information and knowledge, individual shareholders are unable to analyse the real causes of increased or lower dividends. "The annual shareholders meetings in India are perpetually stage-managed. The first 15 shareholders are sponsored by the management itself while the rest are given less time to speak. Thus, the grievances of the shareholdersare never publisised," says a R K Chari, a Mumbai-based shareholder. In the years to come, shareholders would expect more transparency from the management instead of just depositing the dividend cheques into their accounts.