Stock Split Ratio
The stock split ratio specifies how many new shares replace each existing share in a stock split — for example, a 1:2 split gives each shareholder two shares for every one held, a 1:5 split gives five, and a 1:10 split gives ten — with the face value per share reduced proportionately in each case.
A stock split is a corporate action under which a company subdivides each existing share into multiple shares of lower face value, keeping the total paid-up capital and net worth of the company identical. The stock split ratio is expressed as 'old shares : new shares'; the market convention in India often writes it as a ratio where the left side represents the number of original shares and the right side represents the number of post-split shares. A 1:2 split (or '2 for 1') converts each share into two shares with face value halved; a 1:5 split converts each share into five shares with face value reduced to one-fifth; a 1:10 split converts each share into ten shares with face value reduced to one-tenth.
The Companies Act 2013 requires shareholder approval (via an ordinary resolution passed at a general meeting or through postal ballot) to alter the capital clause of the Memorandum of Association, which is a prerequisite for changing the face value. The board of directors approves the split in principle, and shareholder approval is then sought. Once approved, the company informs the stock exchanges, which fix a record date. Shareholders holding shares on the record date receive the post-split shares credited to their demat accounts automatically through NSDL or CDSL.
The most common face values for Indian equities are Rs 10, Rs 5, Rs 2, and Re 1. A split from Rs 10 face value to Re 1 represents a 1:10 split, while a split from Rs 10 to Rs 2 represents a 1:5 split. The Securities and Exchange Board of India (SEBI) has not prescribed a minimum face value for equity shares, though exchange listing regulations historically required a minimum face value of Re 1 per share. Several highly valued companies — notably in the technology and consumer sectors — carried out repeated splits over the years as their share prices rose to levels that reduced retail accessibility.
The distinction between a stock split and a bonus issue is important for investors. In a stock split, the face value per share decreases proportionately, and the total paid-up capital on the balance sheet remains numerically unchanged (same total rupee amount, just divided among more shares). In a bonus issue, the face value remains unchanged, and new shares are issued by capitalising reserves, increasing the paid-up capital on the balance sheet. Both actions increase share count and reduce price proportionally, but the accounting treatment and the source of funding differ fundamentally.
For historical return calculations, stock exchanges apply a price adjustment factor to pre-split prices so that charts and returns data are comparable across time. Investors who track a stock over many years need to account for all splits and bonuses to compute an accurate cost of acquisition and long-term return. Depositories such as NSDL and CDSL maintain a corporate action history that aids in such calculations.