Promoters queue up for stock splits

Banks, which have seen wealth erosion over 2-3 years, lead the way

With the markets gaining through the past year, promoters have been using the opportunity to infuse liquidity and make their high-priced stocks available in greater quantities to shareholders, through stock splits.

So far this year, 80 companies have announced a sub-division in their equity shares, against 60 firms in the corresponding period last year. A total of 78 companies had announced stock splits in 2013, according to Capitaline data.

In the past four-and-a-half months, 56 companies have proposed stock splits. From 23,906 on May 15, the BSE Sensex has rallied 12 per cent so far.

“Most promoters are interested in increasing shareholder value. Historically, stock splits have helped create long-term value, provided fundamentals grow proportionately. In case of a bull market, splits, bonus issues, etc, do create wealth,” said G Chokkalingam, founder and managing director, Equinomics Research and Advisory.

A stock split typically reduces the value of a share to the extent of the split, making even high-priced stocks accessible to retail investors. In 1999-2000, promoters of information technology companies had started the practice. In 2006-2007, real estate companies had announced stock splits, followed by pharmaceutical companies in 2010.

Banks queue up
This time, promoters of banks are queuing up for stock splits. In the past month alone, four— State Bank of India (SBI), ICICI Bank, Punjab National Bank and Canara Bank — have announced stock splits.

So have Corporation Bank, Jammu & Kashmir Bank and Axis Bank. The latter two have already carried out stock splits.

The latest is Bank of Baroda, which announced a 5:1 split (every existing equity share with face value of Rs 10 will be split into five with face value of Rs 2 each).

“Considering many banks have seen wealth erosion in the past two-three years, stock splits will help regain shareholders. Some banks are also opting for such splits because the base value of their shares is quite high and there is a genuine need for a split, as this has been long overdue,” says Chokkalingam.

Last week, SBI, the country’s largest bank, proposed to reduce the face value of equity shares from Rs 10 a share to Rs 1, and increased the number of issued shares proportionately.

The decision would enhance broader investor participation, especially retail participation, and the increase in demand would enhance the price to earnings ratio, said SBI Chairperson Arundhati Bhattacharya.

The board of directors of Shivam Autotech were scheduled to meet on Monday to consider a stock split of the company’s equity shares of Rs 10 each.