The shares of Adani Power appeared to have crashed around 80 percent in one single session on September 22, as the stock price adjusted to a 1:5 stock split. The stock in reality jumped around 20 percent after turning ex-bonus to hit a fresh record high.
Adani Power's board of directors during a meeting in August had approved its first-ever stock split in the ratio of 1:5. The record date to determine the eligibility of the shareholders set to receive the bonus equity shares was set on September 22.
What it means for shareholders?
If a shareholder owns 10 shares of Adani Power worth Rs 100 each, he will own 50 shares of the company after the stock split, with each share being worth Rs 20. However, the total worth of his holding will remain unchanged at Rs 1,000.
What is a stock split?
A company announces stock split to increase the overall liquidity of the stock. While this increases the total number of shares, it does not change the market capitalization of the company. This makes it more affordable for other investors to add to their portfolio, creating strong upside potential for the stock.
Adani Power had earlier said that it has approved the stock split in order to “enhance the liquidity of Company's equity shares by encouraging participation of retail investors as the split will make the shares more affordable to invest”.
Adani Power share price: Key details
As a result of the stock split, Adani Power shares appeared to have crashed around 80 percent, while in reality, they simply adjusted to the corporate action. The stock jumped around 20 percent to remain locked in the upper circuit at Rs 170.25 apiece, creating a new 52-week high record.
Morgan Stanley initiated call on Adani Power with an 'overweight' rating, saying that the company is a "good illustration of turnaround in India's corporate history". This comes after market regulator SEBI cleared Gautam Adani and his diversified conglomerate of the stock manipulation charges levelled by US-based short-seller Hindenburg Research.
Morgan Stanley called Adani Power its 'top pick'. "APL will deliver strong earnings growth driven by timely completion of projects & more PPA wins medium term," the international brokerage added.
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