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What is Stock Split: Benefits, Example, Impact And Upcoming Stock Split List

What is Stock Split

Listed companies frequently engage in activities such as issuing bonus shares or distributing dividends. A stock split is one such activity where the number of shares rises, but the overall market value remains unchanged. This means each share’s price adjusts accordingly, maintaining its fundamental value.

What is Stock Split?

A stock split occurs when a listed company takes corporate action to divide each existing share into multiple new shares, without altering the total value of the shares. This ensures that each investor’s stake in the company remains the same. However, the total number of shares issued by the company increases.

A stock split primarily makes shares more affordable for investors without changing their total value. The company uses a specific ratio, like 2:1 or 3:1, to divide existing shares and generate additional ones.

Investors receive shares proportional to their current holdings, adjusted according to the split ratio. For example, a 2:1 split means each share becomes two, while a 3:1 split results in three shares for every original one.

There are several reasons for a stock split. One reason is psychological.

When the price of stocks increases, some investors may consider them too pricey. The stock is split to bring down the price, thus making it more affordable and attractive. While the actual value does not change, the lower price may draw in new investors. Present shareholders may also feel they are owning more shares, thereby increasing their potential gains if the prices increase.

Another reason is to boost liquidity. A stock split increases the number of shares, making trading easier and encouraging more buyers. Companies can also repurchase shares at lower prices without affecting liquidity too much.

Example of a Stock Split

For instance, when an ABC Company declares a 2-for-1 stock split and you own 100 shares priced at Rs 80, then your investment is Rs 8,000. When this split comes into effect, you have 200 shares at the price of Rs 40 each with the same value as Rs 8,000.

Types of Stock Splits

A company can implement two types of stock splits to adjust share prices: regular and reverse stock splits.

Regular Stock Split: The company increases its shares in number by producing more for the existing stockholders plus they will continue their dilution process once after lower pricing of shares than before; otherwise all previous effects accrue.

Reverse Stock Split: The company’s shares decrease. Take an example, you were holding 10 shares initially, and if there comes a 2-for-1 reverse stock split, you have only 5 now. Total value of your investment does not change. Supposing each share was Rs 4 prior to splitting; they now become worth Rs 8 and therefore having the same Rs 40 value as before. However, you now hold fewer shares.

Advantage of Stock Split

  • High-priced stocks usually tend to lose some trading activity. However, the increase in shares and decrease in price would make the liquidity higher, allowing traders to trade at lower prices.
  • When share prices are falling, portfolio managers can more easily buy and sell shares, since each trade is a smaller proportion of the portfolio.
  • Selling options on high-priced stocks can be expensive. A stock split lowers the price, making selling put options cheaper and more affordable.
  • Stock splits can often lead to a rise in share prices. Research shows that just announcing a stock split increased the price by 2.5% on average, and over a year, stocks that split outperformed the market by 4.8%.

As there are two sides to every coin, just as there are benefits, there are also some drawbacks to a stock split.

Disadvantage of Stock Split

  • Stock splits can lead to market volatility. When shares become more affordable, more investors may decide to buy, which can increase price fluctuations.
  • Not all stock splits result in higher prices. Some splits, like reverse stock splits, occur when a company’s stock is at risk of being delisted, and these typically don’t boost share prices.

List of Upcoming Stock Splits:

Company NameOld FVNew FVAnnouncementRecordSplit Date
Shish Industries10130th Oct17th Dec17th Dec
PC Jeweller10130th Sept16th Dec16th Dec
Exxaro Tiles10114th Oct13th Dec13th Dec
Shradha AI Technologies5223rd Oct10th Dec10th Dec
Global Education5222nd Oct10th Dec10th Dec
Shradha Infraprojects5226th Oct10th Dec10th Dec
Achyut Healthcare10119th Oct10th Dec10th Dec
Eraaya Lifespaces10119th Oct6th Dec6th Dec
Consecutive Investments & Trading Co10116th Oct6th Dec6th Dec
Tara Chand Infralogistic Solutions1021st July5th Dec5th Dec
FV = Face Value

Frequently Asked Questions (FAQs)

What is a stock split?

A stock split is when a company divides its existing shares into more shares without changing the overall value, making shares more affordable.

Is a stock split good for the stock?

A stock split signals company growth and makes shares more affordable for investors.

Who benefits from a stock split?

The company benefits by increasing liquidity.

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