Top gainers Tata Steel & Bajaj Finserv rallies over 15% each this week

• Tata Steel & Bajaj Finserv are among the top performers of the week as investors cheer announcement of stock split.
• On Monday, Tata Steel announced to split its shares in a ratio of 10:1 in its June quarter results and as a result the stock has been on a gaining spree since then.
• Similarly, shares of Bajaj Finserv have also been rallying after the company announced that its board would consider a bonus and stock split on Thursday.

Tata Steel & Bajaj Finserv are among the top performers of the week that have rallied over 15% each on announcement of stock split and bonus shares.

On Monday, Tata Steel announced to split its shares in a ratio of 10:1 in its June quarter results and as a result the stock has been on a gaining spree since then. This means that each share of the company has been split in 10 parts, making each share worth one-tenth the cost.

Similarly, shares of Bajaj Finserv have also been rallying after the company announced that its board would consider a bonus and stock split on Thursday.

It is important to note that the stock split does make a single share of the company cheaper, but it does not cause any change to the market capitalization of the company. Tata Steel’s market shares still linger a little over ₹1,19,000 (about $15 billion) after the stock split.

Motilal Oswal explains that the split shares neither add new value nor does it dilute the ownership stake of the shareholders. However, they do increase the number of shares an investor holds.

“Imagine a company. It has issued around 1,00,000 equity shares of face value of ₹10 per share. The company decides to split its shares in the ratio of 2:1. What this essentially means is that every share of the company will now be split into two. This will, in effect, increase the number of equity shares of the company to 2,00,000 from the erstwhile 1,00,000. And simultaneously, the face value of the shares would also come down to ₹5 per share,” the brokerage firm said.

READ MORE: EXPLAINED: A stock split helps increase liquidity in a stock by making it more affordable for retail investors, but does not guarantee an uptick

Any company usually takes up a stock split to make the shares more affordable for small retail investors and attracts high trading volume. Tata Steel too had a similar intention behind it, Manoj Dalmia, founder and director of Proficient Equities, told Business Insider.

It’s not a new trend either. Multiple Indian companies — including Johnson Pharma, JBM Auto, Jubilant Food — have undergone a stock split this year. Rajnish Wellness, Ontic Finserve, Hindustan Foods and Shanti Educational Initiatives carried out a stock split last Friday on July 22, 2022. Even Bajaj Finserv is contemplating a stock split along with a bonus issue.

Tata Steel’s stock split follows its quarterly results for the first quarter of fiscal year 2023, which showcased a sharp decline of 12.83% in its consolidated profit (₹7,764.96 crore). Its revenues from operations rose by 18.6% to ₹63,430 crore on an annual basis.

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