Share Dilution

Share dilution occurs when a company increases its total number of outstanding shares through the issuance of new equity — via a follow-on public offering, a rights issue, ESOPs (Employee Stock Option Plans), a Qualified Institutional Placement (QIP), or the conversion of convertible instruments such as warrants or convertible debentures. Dilution reduces the proportional ownership of existing shareholders and lowers earnings per share (EPS) unless the new capital generates returns that offset the increase in share count. In India, SEBI regulates dilutive issuances carefully to protect existing investor interests — requiring board approval, audit committee review, and in certain cases shareholder approval through special resolutions. Investors in Indian small and mid-cap companies need to be particularly vigilant about recurring dilutive capital raises, which can erode long-term wealth creation even if the underlying business is growing.