Adani Power shares made headlines on September 22 when they appeared to plunge nearly 80% in a single session. However, this dramatic drop was purely a technical adjustment following the company’s first-ever stock split. In reality, the stock surged around 20% post-split, hitting a fresh record high.
Understanding the Stock Split
In August, Adani Power’s board approved a 1:5 stock split, marking the company’s debut move to divide its shares into smaller units. The record date for determining shareholders eligible for the split was set for September 22.
Here’s how it works: if an investor owned 10 shares valued at Rs 100 each before the split, they would hold 50 shares post-split, with each share now priced at Rs 20. The total value of their holdings, however, remains unchanged at Rs 1,000.
Why Companies Do Stock Splits
Stock splits are primarily aimed at increasing the liquidity of a company’s shares. By lowering the individual share price, the stock becomes more affordable to a broader base of investors. This often encourages retail participation and can potentially boost the stock’s market activity without altering the company’s overall market capitalization.
Adani Power noted that the move was designed to “enhance the liquidity of the company’s equity shares by encouraging participation of retail investors, as the split will make the shares more affordable to invest.”
Adani Power Share Performance
Following the split, Adani Power shares initially appeared to fall sharply due to the price adjustment. Yet, the stock quickly recovered, jumping about 20% to reach Rs 170.25 per share, locking in the upper circuit and setting a new 52-week high.
Global brokerage Morgan Stanley has given Adani Power an ‘overweight’ rating, citing the company as a notable example of a corporate turnaround in India. After regulatory clearance from SEBI regarding stock manipulation charges raised by US-based short-seller Hindenburg Research, Morgan Stanley called Adani Power a “top pick,” forecasting strong earnings growth driven by project completions and new Power Purchase Agreement (PPA) wins in the medium term.
Bottom Line
Investors should not be alarmed by the apparent 80% drop in Adani Power shares. The decline was purely a result of the stock split mechanics, and the company’s fundamentals and market potential remain strong. With increased liquidity and positive broker sentiment, the stock is poised to attract more retail and institutional interest in the coming months.