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Indian firms have been on a stock-split spree amid the year’s roaring market rally, the notable new entry to the list being Indian Railway Catering and Tourism Corp. Ltd (IRCTC). In the 10 months to October, as many as 48 companies have already gone for the sub-division of shares as the benchmark Sensex gained nearly 25%.

In October alone, 18 firms went for stock splits, compared to 11 in the preceding two months combined, a compilation of BSE data shows. This is already a three-year high, with two months to go.

Splitting Frenzy
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Splitting Frenzy

Last year, just 25 companies went for stock splits, while 29 moved ahead in 2019. The 30-share benchmark index delivered 15.8% and 14.4% returns, respectively, in those two years.

A stock split happens when a company divides its stock into more shares. However, the total value of holdings remains unchanged, which means the price of the shares falls proportionately.

This is typically seen as a means of boosting liquidity by making shares affordable for small-scale and retail investors.

Last week, IRCTC shares went for a stock split in the ratio of 1:5—meaning each share got split into five, while the per-share price came down to one-fifth.

The company had made the announcement in August, and its stock more than doubled in the intervening period. Such corporate action holds relevance in the current market rally, analysts said.

“This bull run in the market is primarily driven by retail clients and domestic institutional investors," said Amit Jain, chief strategist-global asset class and co-founder of Ashika Wealth.

Brief hiccups
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Brief hiccups

“Hence, each company is trying to be in reach of retail investors with this stock split frenzy. Apparently, it makes stocks cheaper in the eyes of retail investors—which is actually not the case, but with the lower price range they feel now they can buy it."

“It looks like more will follow, as it is a good opportunity to increase shareholder base with long-term price stability," Jain added.

While analysts feel it is a good move by companies as it helps them get more stable prices in the long run, there may also be short-term pain, instead of boosting retail demand for shares, shows an analysis of the companies that went for a stock split in August and September.

Almost 80% of such firms slumped in the one month after they turned ex-split.

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