There are 2 views
common about stock (Share) split:
First, that such a
move has no impact on share price.
Second, stock splits
push up the stock price, as the demand for the shares increases after the move.
Mr. Arun Kejriwal,
Founder, Kejriwal Research & Investment Services explains, "Say a
stock with face value of Rs. 10 is split, it quotes a price of Rs 5. Similarly,
if the market price was Rs. 1000, it should quote Rs. 500 after the split.
However, in reality the stock price quotes higher. This means that share prices
move up post split, typically 7 to 9%. Hence, even though theoretically stock
splits are not supposed to add value to a stock, practically it does add
value."
Out of the data for
20 firms, compiled by Business Standard Research Bureau, only 7 companies'
stock prices had slipped post stock split.
Axis Bank stock fell
5% after split in July and J & K Bank fell 11% after split last month. But
many others have only gained. Southern Ispat stocks have gained 11% after the
split last month & Havells India gained 6% post split August , 2014.
Godrej Properties has
gained 31% between November 2013 (when stock split happened) and October 1,
2014.
Asian Paints has
gained 23% between July 2013 and October 1, 2014.
Relaxo Footwear
gained 186% since its split in November 2013.
Mr. Vikram Dhawan,
Director,Equentis Capital, points out that stock split can also improve
liquidity in a stock, at least in the near-term. "As lot size of shares
reduces, investors find a stock cheaper and flock to it. Thus, improving
trading volumes in the stock and liquidity," he says.
Some experts opine
that a stock split might not automatically result in benefits for investors,
who bought the split share at a lower price. One possible reason for the
increase in share price could be that a stock split provides a signal to the
market that the firms's share price has been increasing prior to the split and
people assume this growth will continue in the future.
Mr. Piyush Garg,
Chief Investment Officer, ICICI Securities,
said, ''Is not enthused about stock splits, as no fundamental factors
change for a stock. Hence, it is of little relevance for small investors, he
adds.
Some feel a lot has
also to do with the company that is announcing a split.
In 2011, 28 companies
split their shares - HDFC Bank, Titan Industries, Rallis India, Cox &
Kings, Rain Commodities & Bajaj Corp.
However, close to 2
-thirds of these firms failed to perform
in the equity markets, as in some cases, shares were beaten above 70%.
Should you look
forward to a stock split announcement?
You can not be sure
always. It does not matter in the long term.
Hence, investors
should focus on a firms's fundamentals and growth prospects. If a firm is doing
well, its shares will also benefit. If you are not already a shareholder, you
can always buy its shares at a lower price after the split.
Src: BS
No comments:
Post a Comment