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Commentary

Stocks At Face Value Rs. 1 Only. Umm. Why?

SEBI recommends that all public companies should have a face value of Rs. 1 per share. (From DNA India)

In the first phase, said the primary market advisory committee of Sebi, all forthcoming IPOs be priced based on a mandatory Re 1 face value per share.

In the second phase, listed entities having shares with more than Re 1 face value be asked to bring it down to the uniform value.

What does this achieve? I don’t know. To be honest it will not reduce confusion because earnings per share is dependent on number of shares, and not face value per share. I think they should simply abolish face value completely. Number of shares = any number the company can choose, and whatever amount they issue it at becomes part of capital. No “share premium” account and that bull.

This is a very boring legislation and is of no interest to me. First it will not allow splits at all, and splits are efficient ways of keeping shares affordable. Second, bonus issues get more common which are PAINFUL for taxation calculations (new shares, price of 0, have to maintain multiple lots etc.) Finally, this introduces a whole new cost to nearly all companies and brings no added benefit.

For you as an investor this doesn’t mean much in terms of value either.

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