Stock Splits

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Stock Splits

Explanation: A stock split is a corporate action in which a company divides its existing shares into multiple shares. The main aim of a stock split is to adjust the price of the stock to make it more affordable for investors to purchase. This can potentially increase liquidity and widen the investor base by attracting more retail investors.

Example: For instance, Nestle India conducted a 1:10 stock split in January 2024. This means that for every existing share of Nestle India, shareholders received 10 new shares. Consequently, if an investor owned 1 share of Nestle India before the split, they would own 10 shares after the split, but the price per share would be adjusted accordingly to maintain the company’s market capitalization.

The ex-date, or the ex-split date, is the date on which the stock begins trading at the adjusted price reflecting the stock split. On the ex-date, the stock price typically adjusts downward proportionally to the split ratio. In this example, after the 1:10 stock split, the stock price of Nestle India would be reduced by a factor of 10, making it more affordable for investors.

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