Share splits & price rise, Tata Motors' 0 debt plan, comparing same sector co.s, & more

Apple is splitting its stocks.

So is Tesla.

Back home in India, Eicher is splitting stocks too.

Apple’s split is a 4 for 1 split. Meaning, if you own 1 share, you’ll get another 3 shares of the company.

This doesn’t really mean that you are getting stocks for free.

Realistically speaking, you’re actually not getting anything new. The underlying company is the same. The percentage of the company you own will also remain the same.

There’s 1 packet of 4 kg rice. The shopkeeper takes out the rice and makes 4 packets of 1 kg each. Same thing, right?

Apple is splitting 4 for 1.
Tesla is splitting 5 for 1.
Eicher is splitting 10 for 1.

Apple’s current share price is hovering around $500.
Tesla's share price is around $2,200.

On Monday, 31st August 2020, their shares are going to be split.

Eicher’s current price is around Rs 2,200. It has already split on 25th August. Before splitting, its price was around Rs 21,500.

Why do companies split stocks?

The main reason is accessibility.

If you’re a small investor, you might not have the money to add a very expensive stock to your portfolio.

But if the stock is cheaper, you might be able to buy it and add it to your portfolio.

Apple has had 5 stocks splits since its IPO back in 1980. If it hadn’t done any stock split so far, each share of Apple would have cost around $28,000!

Apple, Tesla, and Eicher all say the same thing - they’re splitting to increase liquidity of the share - so that more people can buy and sell the shares.

So what effect does it have on the share price?

Ideally, nothing should happen when a company announces a stock split - because nothing actually changes in reality.

But you know, that’s not how the stock markets work.

Many times, when a stock split is announced, the stock prices rise. This can happen because:

1. More people wanted to buy it but couldn’t afford earlier
2. Many look at it as an indicator of future growth
3. Many think they’ll get stocks for free (which isn’t what happens but people have misconceptions)

Sometimes, the share prices fall too as people think the stock is done going up.

Post the announcements, all of the above 3 companies’ stocks are up.

And by the way, not all companies are after accessibility and liquidity.

Some companies are very comfortable with high share prices and low accessibility: MRF share costs Rs 59,500 and they’ve never split their stock.

🚗  Tata Motors Wants to Reach Zero Debt in 3 Years

In its 75th annual general meeting, Tata Motors announced its plan to bring down its automotive debt down to 0.

At present, the debt stands at around Rs 48,000 crores.

Following this news, the Tata Motors stock price was up 6%.

The company has launched many new products in the domestic market that have been received well. These include electric Nexon, Tiago, Altroz, and Harrier. JLR’s new-generation Defender too has been received well.

In the month of July 2020, Tata Motors saw a monthly car sales growth of 50% compared to July 2019. This comes at a time when most car makers have seen a huge drop in sales due to the pandemic.

According to media reports, many brokerages are being cautious too since there are many factors to look out for. Some like the intent but are careful about the time horizon Tata has set for itself.

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⏱  Abbott Launches Cheap Rapid Test Kit

Abbott’s rapid testing kit has been approved for use by the FDA (USA).

The rapid testing kit can test for the virus in only 15 min and does not require a laboratory to find results.

Further, the per-test cost is only $5 and has a sensitivity of 97.1% and specificity of 98.5%.

This has immense potential to revolutionize many industries even before a vaccine becomes available.

Rapid testing that yields results in only 15 min can mean many shuttered industries can be opened up easily - cinema halls, schools, flights, malls.

For now, all units of this testing kit have already been bought by the USA.

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🔢  More News in Numbers

• 2%: Stamp duty charges in Maharashtra. Earlier, it was 5%. This is a temporary measure till 31st Dec to encourage economic activity in the real estate sector. Example: it would lead to savings of around Rs 2.25 lakh in a transaction of Rs 75 lakh.

• 74%: FDI allowed in the defense sector via the automatic route.

• 31st Dec Validity: All driving licenses and vehicle documents expiring after 1st Feb 2020 will be valid till 31st Dec 2020.

• 31st Aug: Opening of subscription for the 6th tranche of RBI’s Sovereign Gold Bond.