What is a stock split and how does it impact stockholders?

A stock split is a corporate action where a company divides its existing shares into multiple shares, effectively increasing the number of outstanding shares while proportionally decreasing the price per share. The total market capitalization of the company remains the same before and after the split.

For example, in a 2for1 stock split, each shareholder would receive two shares for every one share they owned before the split. If a stock's price was Rs. 100 per share before the split, it would be Rs. 50 per share after the split (assuming a 2for1 split).

Impact on Stockholders:
1. Increased Number of Shares: Stockholders will see an increase in the number of shares they own after the split. The number of shares owned will be proportionally higher, but the overall value of the investment remains the same.
2. Lower Share Price: Since the number of shares increases, the price per share decreases proportionally. This can make the stock more affordable for investors looking to purchase shares.
3. No Change in Total Value: While the number of shares held by each stockholder increases, the total value of their investment remains the same. For example, if an investor owned 100 shares before a 2for1 split, they would own 200 shares after the split, but the total value of their investment would remain the same.
4. Liquidity and Trading: Stock splits can improve the liquidity of a stock by increasing the number of shares available for trading. It can also attract more investors to the stock due to the lower share price.
5. Perception: Some companies use stock splits to manage their stock's price perception. A lower stock price might be more appealing to retail investors, leading to increased interest and demand for the stock.

It's important to note that stock splits do not change the fundamental value of the company or its financial position. They are cosmetic changes aimed at adjusting the share price to make the stock more accessible to a broader range of investors. Investors should consider a company's underlying fundamentals and financial performance rather than focusing solely on stock splits when making investment decisions.