Share prices of two-thirds of companies lose value.
Investors have given a thumbs-down to companies which split their stocks this year. It appears that in a falling market amid global uncertainties, availability of stocks post-split at a cheaper price has failed to find buyers.
So far this financial year, 28 companies split their shares. These include HDFC Bank, Titan Industries, Rallis India, Cox & Kings, Rain Commodities and Bajaj Corp, among others. However, close to two-thirds of these companies failed to perform in the equity markets, as in some cases, shares were beaten over 70 per cent. Since April, domestic benchmark equity indices have lost 17 per cent of their value.
Generally, companies use a stock market rally to widen their equity base through stock splits and bonus issues with an aim to make shares more affordable for retail investors.This is mainly done when the share price rises to levels thought to be too high or much more than price levels of companies in the same sector.
Ambareesh Baliga, chief operating officer at Way2Wealth, says, “Stock splitting strategy seems to be not working anymore. In several cases, stocks were steady till split but post-split they are down to levels not seen in many months.” It does not make sense to keep prices of stocks in less than three digits post-split, he adds.
For instance, shares of Hindoostan Mills, Nouveau Global Ventures and Rockon Fintech have crashed 70 per cent since split. In case of HDFC Bank, the stock has taken a hit of 11.6 per cent, while those of Rain Commodities and Titan Industries have lost 20 per cent and four per cent of their value, respectively.
“Falling markets have impacted the split stocks. More, splitting shares only have a psychological impact regarding prices. Else, there is no change as such,” explains N Sethuram, chief investment officer at Daiwa Asset Management. Prevailing global uncertainties have deterred investors from getting into equities. On Thursday, the Bombay Stock Exchange benchmark or Sensex closed at 16,146.33, down 138.65 points or 0.85 per cent.