Of the 44 companies that split the face value of their stock since September 2013, the stocks of 16 saw gains of 50-300 per cent each

A sub-division in the face value of equity shares—-from a higher to a lower denomination—-has paid dividend, with stocks of select companies seeing a sharp rise after the split. Of the 44 companies that split the face value of their stock since September 2013, the stocks of 16 saw gains of 50-300 per cent each. In contrast, the benchmark S&P BSE Sensex and the CNX Nifty have gained 19 per cent and 21 per cent, respectively, while the S&P BSE mid-cap index and the S&P BSE small-cap index gained 30 per cent and 33 per cent, respectively, during the same period.

Liquidity-driven move

Promoters of small- and mid-cap firms are making a beeline to sub-divide their equity shares from their existing paid-up values to lower denominations. The move is aimed at infusing liquidity and attracting wider investor participation, analysts say. Once liquidity increases, more buyers and sellers trade in the stock, which in turn helps discover its true value. In a stock-split, the shares outstanding are divided into a specific numbers of predetermined shares and the liquidity of the stock increases. “A split increases the quantum of floating stock. As the value goes down, more investors buy stocks. Historically, the prices always go up after a split,” said an analyst with a local brokerage.

FII interest

A sharp rally in the equity market, a strong financial performance, and foreign investors’ interest in select companies have helped these stocks outperform the market. For instance, Astral Poly Technik more-than-doubled from Rs 198 to Rs 479 after the company sub-divided its equity shares from Rs 5 to Rs 2. And, foreign institutional investors have increased their stake in the company substantially — from 8.3 per cent in the December 2012 quarter to 15.8 per cent a year later.

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