After ending at ₹17,157.80 on BSE in the previous session on September 12, the stock of Bajaj Finserv opened at ₹17,157.80 on September 13, down about 90% from the prior close.
Did the stock crack 90% in just opening deals?
Certainly not. Here's what happened.
The stock started trading ex-split on September 13.
So, the stock did not crack 90%. In fact, it rose almost 8% in early trade on BSE. The stock touched a high of ₹1,846 in today's trade so far against the previous close of ₹1,715.80 (adjusted after the split).
When a stock goes ex-split, the brokers take some time to update new stock prices and share numbers of their platforms and that's why, for some time, stock prices are shown as down 80-90%, etc.
Bajaj Finserv had announced the stock split, or the sub-division of its shares, from the face value of ₹5 to the revised face value of ₹1 on July 26, 2022.
What is a stock split?
A stock split might be used by a firm if it is concerned that its share price is too high or too low. A stock split can help a firm lower its share price in order to attract new investors.
As the name suggests, a stock split means splitting a single stock into two or more stocks. No additional shares get issued in a stock split but existing shares get multiplied.
This also gets done in a particular ratio. Suppose a firm has announced a stock split of 1:2, then every one share, will become two. So, if you own 20 shares of a firm, after the split, you will hold 2*20 which is 40 shares without any additional costs.
A stock split is a corporate action, where a company splits its shares into multiple new ones. Split shares neither add any new value nor dilute the shareholders' ownership stake. However, what they do is increase the number of shares of the company.
The main benefit of a stock split is to increase the stock's liquidity and reduce its share price to make it more accessible to retail investors.
What is the benefit of splitting shares?
By splitting shares, a company makes its stock affordable for common investors. When stock becomes too expensive, it can dampen investor demand.
Another of the key stock split advantages is that a company's shares often have more liquidity. Since shares have become more accessible to regular investors, there will be more demand for them, resulting in higher liquidity in the market. After a stock split, buying and selling shares will be much easier.
A stock split doesn't have a significant influence on a company's existing shareholders. The main impact of a stock split is on investors who are watching stock and expecting to buy an entire share at a lower price. A stock split can be a potent stimulus for those investors who have been sitting on the sidelines.