JBM Auto announces a 1:2 stock split with a record date of January 31, 2025. So what is Stock split and what will be its impact on stock ?

A stock split is a corporate action where a company increases the number of its outstanding shares by dividing each existing share into multiple shares. This is done without changing the company’s overall market capitalization. For example, in a 1:2 stock split, every 1 existing share is split into 2 shares, effectively doubling the number of shares a shareholder owns.

The purpose of a stock split is to make the shares more affordable for investors by reducing the share price, while the total value of an investor’s holding remains the same.

Key Features of Stock Split:

1. Increases Liquidity: By lowering the stock price, it becomes more affordable for retail investors, increasing demand and liquidity.
2. No Change in Market Capitalization: The company’s total value doesn’t change because the share price decreases proportionally to the split ratio.
3. Shareholder Value Unchanged: Shareholders own more shares, but the value of their total holding remains the same.

Example of 1:2 Stock Split:

Let’s assume JBM Auto has a current share price of ₹3,000. After the 1:2 stock split, the following changes occur:

• Number of Shares Owned: If you owned 10 shares before the split, you will now own 20 shares.
• Share Price: The share price is halved (₹3,000 ÷ 2 = ₹1,500).
• Total Holding Value: ₹3,000 × 10 = ₹30,000 (before) = ₹1,500 × 20 = ₹30,000 (after)..

Impact of Stock Split on the Stock:

1. Reduced Share Price: The stock price decreases in proportion to the split ratio, making it more affordable for retail investors.
2. Increased Liquidity: Lower share prices attract more investors, which increases trading activity and liquidity.
3. No Change in Market Value: The overall value of the company remains unchanged, as the split is purely mathematical.
4. Psychological Effect: Stock splits are often viewed positively by investors as they perceive the company to be performing well if it opts for a split. This can drive demand, potentially leading to a short-term rise in the stock price post-split.
5. Earnings Per Share (EPS): EPS will decrease post-split as the number of shares increases, but the company’s fundamentals remain unchanged.

So the purpose of a stock split is to make the shares more affordable for investors by reducing the share price, while the total value of an investor’s holding remains the same.. For JBM Auto, this split will lower the stock price and double the number of shares held by investors, making it more attractive for smaller investors to trade.

Note: This blog is just for education purposes , there is no buy or sell recommendation. Trade/invest at your own risk.