Five companies approve stock split last week

A run-up in the market price of the companies has led company promoters to opt for stock splits and thereby increase the liquidity in a booming market.

In the last week alone, a total of five companies, three pharmaceuticals - Cadila Healthcare, Natco Pharma and Shilpa Medicare –and Sarla Performance Fibers and Associate Stone Industries (Kotah) have announced the split of face value of their equity shares as these stocks are quoting at multi-year highs.

Cadila Healthcare and Associated Stone Industries (Kotah) have approved the sub-division of equity shares of their companies from Rs 5 to Rs 1. Natco Pharma will split the face value of its equity shares from Rs 10 to Rs 2, Sarla Performance Fibres from Rs 10 to Re 1 and Shilpa Medicare from Rs 2 into Re 1.

A stock split is usually done by companies that have seen their share price increase to levels that are either too high or beyond the price levels of similar companies in their sector.

The primary motive is to make shares seem more affordable to small investors even though the underlying value of the company has not changed.

Signet Industries has turned ex-stock split today. The company sub-divided the equity shares in the ratio of 10:1 i.e. ten equity shares of Re 1 each for every one equity share of Rs 10 each held.

Signet Industries has zoomed nearly 200% thus far in 2015 from Rs 12.85 to Rs 38 (adjusted to stock split) on the BSE.

"Stock split increases the quantum of floating stocks. As the value goes down, more investors buy stocks," said an analyst.

Ajanta Pharma, Granules India, JMT Auto, Rollatainers and Rasi Electrodes are some shares that have rallied more than 20% post stock split. However, Tech Mahindra, Tata Coffee, Corporation Bank and Bank of Baroda are among notable stocks that declined 6%-34% after sub-division of shares.

Meanwhile, in the first seven-and-half months of calendar year 2015, as many as 56 companies announced stock splits. Of these, 49 companies have split their shares, while seven others have proposed to do so.

In 2014, 35 companies had opted for stock splits during the same period. About 82 companies had sub-divided face value of their equity shares in entire previous calendar year 2014, according to Capitaline data.