1:10 stock split effect: A long-term investor enjoys various other benefits like dividends, bonus shares, buyback of shares, etc. However, some moves by the listed entities don’t change the absolute value of investment but they deliver in the long term. A stock split is one such instrument. A company goes for the stock split with one of the objectives to enhance liquidity and trade volume in the stock that drives the stock at a faster rate post-stock subdivision. So, a long-term investor enjoys the benefit of this split in faster movement and a high trade volume post-stock split, provided the investor sticks with the conviction he or she had at the time of investment. This stock investment formula applies to IPOs as well.
To understand how a long-term IPO investor may benefit from a stock split, one needs to look at the Shanti Educational Initiatives IPO. This SME IPO was launched in June 2016 at a fixed price of ₹90 per equity share. The BSE SME stock was listed on 14th June 2016 at ₹90 apiece. So, the stock had a par listing on the BSE SME Exchange. However, if an allottee had stuck with their conviction and had remained invested in the stock to date, he or she would have registered a whopping return on one’s investment.
1:10 stock split impact
As per the information available on the BSE website, Shanti Educational Initiatives’ share price traded ex-split on 21st July 2022 in a 1:10 ratio. This means, if an allotee had remained invested in this BSE SME stock after par listing, its shareholding in the BSE SME company would have grown 10 times. The BSE SME IPO was launched with a lot size of 1600 company shares. So, post-split, an allottee shareholding would have surged to 16,000.
Stock grows 700% against IPO price
Shanti Educational Initiatives’ share price ended at ₹70.73 apiece on Friday last week. If we compare with the issue price taking a 1:10 stock split into consideration, an allottee who remained invested in the scrip since allotment of shares, the absolute value of one’s money in the company had been ₹11,26,800 ( ₹70.43 x 16,000). As the SME issue comprised 1600 shares in one lot and the issue price was fixed at ₹90 per share. The minimum amount required for investing in one lot of this SME IPO was ₹1,44,000 ( ₹1600 x 90). This means, due to a 1:10 stock split, the net rise in the SME stock against the issue price is 700 percent [{( ₹11,26,800 – ₹1,44,000)/ ₹1,44,000} x 100].
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 27 Apr 2024, 02:26 PM IST
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