A key advisory body of the market regulator Sebi has dropped a proposal mandating uniform Rupee One face value of shares as it no longer sees merit in the proposal, but stock markets say the proposal should have been implemented.
“There is no need for having a Rupee one face value as now dividend is distributed on per share basis,” a member of Sebi’s Primary Markets Advisory Committee told ET.
The committee, which was asked to examine the proposal by Sebi, took the decision to drop the proposal at its recent meeting.
Currently, the face value of shares ranges from Re 1 to Rs 100. Many companies are on their own splitting the value of their shares, and would soon reach the Re One a share level anyway. This could have also prompted the committee to drop the idea. The uniform face value plan owes its origin to a suggestion by SEBI’s Secondary Markets Advisory Committee.
The Association of National Exchanges Members of India or ANMI had also lobbied with Sebi for uniform Rs one face value of shares. The logic behind having a uniform Re one face value for all shares was that it would have made share price comparisons easier.
“Uniform face value of Rs one will not just bring about transparency in the market and benefit shareholders, it will also strengthen valuations,” said K L Garg, member, executive committee of ANMI.
A mandatory Rupee One face value would have also taken away the manouverability companies have in managing their stock price through stock splits and consolidation.
A uniform notional Re one value for shares would have also made it easier for investors to appreciated dividends. Companies usually declare dividends as percentage of face value, which is misleading.
A Rs 10 dividend on a share of face value of Rs 10 yields a large 100% dividend. The yield will actually be lot less as the investor would have bought the share at a much higher market price.
The stock splits by many companies is actually taking face values of shares closer to Re One, though the reason for stock splits is different.
Companies split shares after prices have gone up sharply, which tends to reduce liquidity as investor perceive such shares to be expensive. In a stock split, a company’s existing shares are divided into multiple shares. Although the number of shares outstanding increases by a specific multiple, the share price drops in the same ratio.
[Source: The Economic Times]
