| Analysts point out that the market is priming up for more splits in the coming year on the back of a slew of positives. |
| Prices of a large number of shares are at all-time highs, and are hitting fresh highs on a daily basis. |
| Investor optimism is picking up and the manufacturing sector is in an expansion mode leading to strengthening of the job market. Corporate earnings too are improving. |
| Any news of a stock split is treated like a hot tip these days, with a lot of investors rushing to buy on the counter on hopes to make a quick buck. |
| But most stocks tend to lose ground after the split. That brings up the moot question: how does a stock split affect the company's valuation? |
| A stock split means the division of a high-priced share into a particular number of low-priced shares. For instance, the splitting of Rs 100 (face value) share into 10 shares of Rs 10 each. |
| Stock splits increase the number of outstanding shares and create a bigger and more active market for a company's shares. |
| This usually has an effect of boosting the liquidity or floating stock in the scrip as well as making the scrip more affordable to a wider range of investors. |
| The problem of liquidity increases when the free-float of the company is small and the promoters hold a huge chunk of the equity. |
| In a stock split, the equity capital does not rise; but the existing share capital is distributed among a larger number of shares. Therefore, the dividend outgo also does not increase. |
| Says an analyst from a local brokerage house, "Stock prices, on post-split basis, tend to settle higher if the company's fundamentals and management are of good quality and the split serves the purpose of making the stock more affordable." |
| He adds that splits help in distributing the shareholding pattern widely and they put to rest the fear of takeovers and stock accumulation by raiders. |
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