MCX adjusts to 1:5 stock split: Here's why you should ignore the 80% plunge

MCX share price

• MCX shares adjusted for a 1:5 stock split, not an actual 80% crash
• Stock split increases share count but total holding value remains unchanged
• MCX shares hit a 52-week high post-split

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The shares of Multi Commodity Exchange of India (MCX) appeared to have crashed more than 80 percent in one single day on January 2. This comes as the stock adjusted to a stock split earlier announced by the company.

After closing at Rs 10,989 apiece on January 1, the stock opened at Rs 2,230 apiece on January 2. In reality the stock jumped around 4 percent to hit a fresh 52-week high of Rs 2,278 apiece, adjusting for the stock split.

MCX stock split:

Earlier last year, MCX announced its first-ever stock split in the ratio of 1:5. In September, the company said that its shareholders have approved the company’s plan to divide every share with a face value of Rs 10 each into 5 equity shares with a face value of Rs 2 each.

Later in December, the company fixed January 2 as the record date to determine the eligibility of the shareholders for the stock split.

What it means for shareholders?

If a shareholder owns 10 shares of MCX 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 after the stock split. Hence, the stock may appear to have substantially reduced in value, but in reality, they would simply adjust to the stock split.

Only those shareholders who own the shares of the company as on the record date will be eligible for the scheme, meaning that each of the shares they own will get divided into five shares after the 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.

MCX share price:

MCX shares pared some gains later during the day to trade around 1.5 percent higher at Rs 2,230 apiece, as seen at 11.30 am.

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