BS Number Wise: The rise and rise of the Rs 10,000 shares

There were 16 such stocks in the last financial quarter: compared to one in 2011. The price is beyond the reach of small investors, raising question over face value

Have you bought a share worth Rs10,000 or more? There are more of them now and the total value of such companies--out of reach for small retail players--may surprise you.

Shares topping the five-figure price mark were rare ten years ago. A look at March-end figures across the listed universe in 2011 shows only one such share. There were two by 2013. There were 16 such companies in the last quarter (July to September), gaining from the unprecedented bull run after the coronavirus pandemic. The 16 companies account for over Rs 8.6 trillion in value as seen in chart 1. These companies had more than the combined market capitalisation of 3,149 of the 3,793 companies in the sample under consideration.

The companies include tyre maker MRF (September-end share price of Rs 79,367.7), electronic systems manufacturer Honeywell Automation India (Rs 45,686.9) and apparel maker Page Industries (Rs 31,697.7). Other notables include Rajasthan-based Shree Cement (Rs 28,925.6) and multinational associate 3M India (Rs 24,880.4). Business Standard didn’t get a reply to the emails it sent to these companies.

Companies worth more than Rs 10,000 a share usually have higher foreign and domestic institutional investor holdings. The promoter holding tends to be higher and the stake of retail and other investors is 14.9 per cent, compared to 34.7 per cent for shares priced under Rs 10,000 (see chart 2). This can have a bearing on liquidity and price-discovery of such shares. Retail investors have been increasingly more active in the market. Such investors accounted for 70.5 per cent of the traded value in the top one-tenth of stocks by value of public shareholding on the National Stock Exchange.

Why are individual shares so expensive? Each share has an underlying nominal price called face value. Companies can make shares cheaper by going for a stock split. This would mean that a Rs 10,000 share can be split into 10 shares worth Rs 1,000 each. One runs out of whole numbers after a while. Some have suggested doing away with face value entirely to make this process easier. Other means of making shares cheaper, like a bonus issue, requires accounting adjustments that may not be feasible for all companies.

“Bonus cannot be done by a loss-making company,” said Pune-based company secretary Gaurav Pingle.

The Securities and Exchange Board of India considered abolishing face value in February 2009, but that would have required legal changes, like in the Companies Act, and operational challenges.

Individual share price of many companies is rising even as the size of individual trades has come down. Business Standard calculated the average trade size from 1999-2000. Average trade size in the cash market has moved up from Rs 22,521 in 2010-11 to Rs 29,754 so far in 2021-22. The larger secular trend seems to be the drop seen from levels of around Rs 88,447 seen around 1999-2000 (see chart 3).

One must bear in mind that this includes institutional buying and selling. Which means the average trade size would be far lower for the retail investor. This makes it even more unaffordable for retail investors to buy into the Rs 10,000 club. It strengthens the case for re-examining the concept of face value.