A Comparative Analysis of Stock Splits in FY24

In FY 2024, approximately 94 stock splits were declared and executed among companies with a market capitalization exceeding Rs.500 crores. Out of these, 44 were completed. The data shows that 30 stocks registered positive returns following the split, whereas 14 experienced declines. A stock split generally makes shares more affordable, thereby altering the risk-reward ratio and limiting potential drawdowns. The most significant drawdown observed was approximately 40% in Hardwyn India, which had a split ratio of 10:1 and yielded a 1-year return of 17.64%. Notably, eight stocks delivered multibagger returns post-split.

Following is the table that shows the stocks went multibagger after the stock split:

Key Observations on Stock Split Returns:

High Post-Split Returns in Many Cases

Many of the stocks listed have shown significant returns after the split. This suggests that the stock splits were well-received by the market, potentially because they made shares more affordable and thus accessible to a larger pool of investors. For instance, the first stock listed (EFC (I)) showed an impressive post-split return of 1590.27%.

Variability in Returns

Returns after the stock splits vary widely across different companies. While some companies exhibit extremely high returns, others have shown negative returns post-split. Negative returns may indicate other market dynamics or company-specific factors influencing stock prices post-split that are not directly related to the split itself.

Split Ratio Variance

The split ratios range from 2:1 to 10:1. There does not appear to be a clear correlation between the split ratio and the return after the split, suggesting that other factors such as company performance, sector health, and overall market conditions play a significant role in determining post-split success.

Impact on Investor Perception

Stock splits can be seen as a signal by the management that the company is doing well and expects to continue to perform well, which might help boost investor sentiment. However, they do not add intrinsic value as the market cap remains unchanged. The mixed results in post-split performance indicate varied investor reactions based on broader context or expectations.

Short-term vs. Long-term Effects

While short-term gains can be substantial, as seen in some of the high returns post-split, the long-term effects require ongoing evaluation. For example, some stocks show significant one-year returns after the split, indicating sustained investor interest and positive market dynamics around those stocks.

Negative Returns and Market Dynamics

The stocks showing negative returns post-split (such as Avantel, ADF Foods, and Persistent Systems) underscore that splits are not guaranteed to enhance stock value and can be influenced by broader market downturns or sector-specific challenges.

Conclusion

The stock splits documented in the study have led to various outcomes, reflecting the complex interplay between market perceptions, investor sentiment, and fundamental business performance. For companies considering a split, it’s crucial to manage it alongside clear communication of ongoing and future business potential to maximize the positive impact on stock value.

Investors, on the other hand, should consider stock splits as part of a broader investment decision framework, evaluating the company’s fundamentals and market conditions rather than making decisions based purely on the occurrence of a split.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.