Stock in News – IRCTC – What happens in ex stock split & does it alter valuation? Zerodha’s Founder & CEO Nithin Kamath explains!

Stock in News – IRCTC – what happens in ex stock split and does it alter valuation? Zerodha’s Founder & CEO Nithin Kamath explains!   

The Indian Railway Catering and Tourism Corporation (IRCTC) is in news as it witnessed a strong movement on the exchanges on Thursday after the counter turned into an ex-stock split in the ratio of 1:5. Ex-stock split refers to subdivision of the face value of equity shares, though the underlying value remains intact. 

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Does it benefit you as an investor or should you buy it now? Here is a small explanation from Nithin Kamath, Founder and Chief Executive Officer of Zerodha Broking Limited, a financial services company. Kamath’s explanation comes via a series of tweets on his official Twitter handle @Nithin0dha. 

“Every time there is a corporate action like a stock split in #IRCTC today and the stock price drops in adjustment, retail investors tend to buy the stock wrongly thinking that the stock has become cheaper,” Kamath tweeted.  

“If you had 1 share of #IRCTC at a price of Rs 4500, you will now have 5 shares at Rs 900 each—4 new shares will be credited in 4 days after the stock split. This makes no difference in terms of the value of the stock. It isn’t cheaper just because the price is lower,” the second tweet said.  

If you had 1 share of #IRCTC at a price of Rs 4500, you will now have 5 shares at Rs 900 each—4 new shares will be credited in 4 days after the stock split. This makes no difference in terms of the value of the stock. It isn’t cheaper just because the price is lower 2/4

— Nithin Kamath (@Nithin0dha) October 28, 2021

“Corporate actions like stock split, bonuses, rights issues, increase the number of shares in the company and hence reduce the price of the stock. This makes no difference to the value. It is like having 1 chocolate of 100 gms or 5 of 20 gms each, the value remains the same,” another tweet said.  

Corporate actions like stock split, bonuses, rights issues, increase the number of shares in the company and hence reduce the price of the stock. This makes no difference to the value. It is like having 1 chocolate of 100 gms or 5 of 20 gms each, the value remains the same. 3/4

— Nithin Kamath (@Nithin0dha) October 28, 2021

“If you want to learn more about corporate actions and their impact on stock prices, do check out this on @ZerodhaVarsity,” the fourth tweet said. 

Shares of IRCTC ended at today ended at Rs 913.75, up by Rs 87.95  or 10.65 per cent today. The stock lost shed some gains after hitting an intraday high of Rs 983.60 as the stock gained over Rs 157 from the last closing price on Wednesday.  

Also Read: IRCTC rallies 19% intraday on BSE as counter turns ex-split - buy or avoid? Analyst spells strategy 

The decision on division of shares was taken by the board of IRCTC on 12 August 2021. The record date of IRCTC shares is 29 October.