Shares of Tata Steel surged by 7.42 percent a day after the company executed a 1:10 stock split. An investor holding a single share of Tata Steel would now hold ten shares after the stock split was exercised. A stock split is used by companies to increase the liquidity of the stock. Before the stock split was exercised, the shares of Tata Steel were trading around the Rs 1,000 mark, but after the split the shares were worth Rs 100 each (before any price movement). This cheaper price per stock allows more traders to buy and trade the stock easily, creating volume and liquidity for the company.

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Some companies may choose to do a stock split where they combine many stocks into one to drive up the prices of a share. Earlier in the year, Amazon exercised a 20:1 stock split that made its stock price go from around $125 to over $2,000. Some other companies choose to never split the stock to keep prices high and volume low. Berkshire Hathway’s Class A shares are a prime example of this, with the stock having never split before and having the highest price for any American share.

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For retail investors, the stock split mathematically means no chance. If you hold Rs 1,000 worth of shares that is then split into ten shares worth Rs 100 each, your holding in the company is still worth the same. But with market movement depending on perception and psychological factors as well, retail investors often like to hold stocks of companies that are issuing a stock split since that is considered a sign of a thriving business. This results in upward market movement, which along with higher volume and liquidity may result in prices of the share being pushed up.

Apart from Tata Steel, Bajaj Finserv has also announced that its board has cleared the proposal of a stock split of equity shares in 1:5 ratio. The company is looking to complete action on or before September 26, 2022 to exercise the split.

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(Edited by : Sudarsanan Mani)