Stock Split

• When a company splits its shares into smaller portions, it is known as a stock split. As a result, there are more shares. But the investment's overall value remains the same. For instance, you receive two shares for every one you own in a 2-for-1 stock split. You will now have two shares if you previously held one. But each share's price will be cut in half. Thus, the total value remains unchanged.

Example of a Stock Split: Before the split:

• You have 10 shares.
• Each share costs Rs 1,000.
• Your total investment is Rs 10,000. After a 2-for-1 stock split:
• You have 20 shares.
• Each share is now Rs 500.
• Your total investment is still Rs 10,000.

Let’s assume, a company announces a 2-for-1 split. After it announces, the shares will double in quantity. As a result, more shares can be traded now. Thus, liquidity in the market improves. Along with this, the face value of each share drops. The drop is in the same proportion as the increase in share count. Even though the share count and price change, the company's total market value does not change. The business remains worth the same as before.

A stock split does not mean investors will lose or gain money. They just hold more shares than before. But each share is priced lower. This change makes it easier for people to buy and sell the stock. With more shares, trading activity in the market may increase.

Companies split their stock for these reasons:

• One reason is to make the shares affordable. When the share price becomes high, it may be hard for small investors to buy. A split lowers the price per share. So, it becomes easier for more people to invest.
• Another reason is to attract more investors. A lower price can lure many buyers and increase the company’s investor base.
• Stock splits also help improve liquidity. More shares in the market mean more trading. This allows the purchase or sale of shares.
• Also, firms may want to keep their stock price within a range. A split can help bring the price back down to a more manageable level if it increases too much.
• A split can boost investor confidence. It is seen as a sign that the company is doing well and growing. This can attract more investors.

A stock split doesn’t affect an investor's investment or the company's worth. But it can influence the stock price.

• The split ratio is used to modify the share price right after the split. For example, a stock priced at Rs 900 will fall to Rs 300 if there is a 3-for-1 split.
• This can lead to short-term market activity. More people may start trading the stock. This could cause brief increases and decreases in the price.
• In the long run, stock splits are seen in companies that are growing. As more investors get interested, demand may rise. That can push the price up over time.