Zerodha Founder’s Advice to Retail Investors on IRCTC Stock Split
As of today, October 28, IRCTC shares have been divided in the ratio of 1: 5, dividing the par value of the share from 10 per share to ??2 per share. Zerodha founder Nithin Kamath took to Twitter to explain what a stock split means and does it impact retail investors. âWhenever a company announces a stock split, retail investors tend to buy the stock with the mistaken belief that the stock has become cheaper,â said Nithin Kamath.
âWe now have a helping hand to inform users. The IRCTC has experienced a split. A stock split only increases the number of shares and does not mean that a stock has become cheaper. It has no impact on the fundamentals of the business, âsaid the founder of Zerodha.
Recently, Zerodha launched a new feature called Nudge on their trading platform which will help traders learn from their mistakes.
What does the IRCTC stock split mean for investors?
If you had 1 IRCTC share at the price of ??4500, you will now have 5 actions ??900 every 4 new shares will be credited within 4 days of the share split. It makes no difference in terms of the value of the stock. It is not cheaper just because the price is lower.
What is a stock split?
A stock split increases the number of shares outstanding by issuing more shares to current shareholders. Stock splitting lowers the market price of individual stocks, however, does not have the effect of changing the market capitalization of the company.
âCompany actions such as stock splits, bonuses, rights issues, increase the number of company shares and thus reduce the share price. It doesn’t change the value. It’s like having 1 chocolate of 100g or 5 of 20g each, the value stays the same, âsaid Nithin Kamath.
How does the stock split affect the share price?
In most cases, it can be seen that a stock split tends to lead to an appreciation in the share price. This is because, as the stock now appears to be cheaper, there is more demand from small investors and individuals, resulting in an increase in the price. This creates a positive approach to investing in companies as the previously seemed very high stock price becomes available at a good price.
While announcing its first quarter results, the IRCTC disclosed its stock split plans as the board approved the 1: 5 stock split proposal.
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