With small investors mostly eyeing stocks with lower-value shares i.e.Rs 50-500 per piece, many companies went for stock-split – dividing its existing shares into multiple shares
Companies that have gone for stock spilt last year are reaping rich gains in the current bull-run.
One out of every seven stocks that went for stock-split since January 2016 has recouped at least 50% of its original value in the rally that began in January 2017. Usually, it takes years for a stock that has been split to regain its original value.
The current bull run has been so strong that stocks including Mold-Tek Packaging and Precision Wires India have regained about 100% of their pre stock-split value in a relatively short period.
With small investors mostly eyeing stocks with lower-value shares i.e.Rs 50-500 per piece, many companies went for stock-split – dividing its existing shares into multiple shares.
Though the number of shares increases due to the stock split, the underlying value of each share and the total market capitalisation remain the same. The most common split ratios are 10-for-1, 5-for-1 and 2-for-1.
Out of 76 stocks analysed by DNA Money, 12 stocks are now at 50% or more of their respective pre stock-split value.
For a 2-for-1 split, 50% pre-split value is just par for the course but there are interesting examples of a higher rise. Mold-Tek Packaging did a 2-for-1 stock split in February 2016. A day before the split, the stock closed at Rs 236 apiece. Immediately post the split, the stock was trading at Rs 120 level. Thanks to the bull-run, Mold-Tek Packaging shares now trade at Rs 290 levels.
The story is similar for Precision Wires India, and Khemani Distributors & Marketing that have reached their pre stock-split levels in quick time.
Minda Industries went for a 5-for-1 split in September-2016, with stock value adjusting from Rs 1,500 to Rs 290 after the split. The stock trades at Rs 770-780 levels today. While a split, in theory, should have no impact on a stock's price, quite often it results in renewed investor interest.
Sanjeev Zarbade, vice-president, PCG Research, Kotak Securities, said, "Firstly, many investors who were unable to buy the stock earlier can now buy because of lower absolute value. Secondly, liquidity goes up, so trading volume becomes larger. Many large investors are interested in buying stocks as impact cost is now much lower." In addition, many investors feel that stock split is a signal that management is looking at the share price and some shareholder-wealth enhancing moves may be expected in future, he said.
Another factor helping stock price could be bid-ask spread. "With a stock split, a higher number of shares outstanding can result in greater liquidity for the stock in effect narrowing the bid-ask spread," Rakesh Tarway, head-research, Reliance Securities, said.
According to data collated from exchanges, as many as 35 companies including Dwarikesh Sugar, Navin Fluorine, Bharat Electronics, and LT Foods, have done stock-split in the calendar year 2017 already when broader stock markets had gone up 18% in about eight months. Others like e-commerce player Infibeam, shares of which trade at over Rs 1,400 apiece, announced September 1 as the record date for stock split. Private-sector lender YES Bank, with shares trading at Rs 1,720, wants to split it every Rs 10 face-value share into five shares of Rs 2 face-value each.
Yet, there are a number of well-tracked companies who should definitely split their stock given the high absolute value of their shares. Tyre maker MRF's shares trade at a mind-numbing Rs 63,000 apiece. Each share of Eicher Motors is now worth Rs 31,000. One stock of auto-ancillary maker Bosch costs over Rs 22,000 while one share of Shree Cement costs Rs 17200.
Anita Gandhi, whole-time director, Arihant Capital Markets, said, "A stock split is a management call. It does not change the working of a company. It only makes it easier for investors to own the share. However, going forward such companies may consider stock split."
In last 30-40 days, the board of Indraprastha Gas, Atlas Cycles and Heritage Foods, among others, have given nod for the respective stock split. In 2016, over 75 companies went for a stock split. Around 90 companies did respective stock splits in 2015.
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