Reverse Stock Split is a corporate action in which a company reduces the total number of its outstanding shares while proportionally increasing the share price. This means multiple existing shares are consolidated into a smaller number of shares without affecting the company’s overall market capitalization. For example, in a 1-for-10 reverse stock split, 10 shares worth _10 each would be converted into 1 share worth _100.

The primary objective of a reverse stock split is often to increase the market price of a company’s shares. Companies usually undertake this action to meet minimum price requirements for stock exchange listings or to improve their perceived market image. While the face value and total shareholder equity remain the same, the number of shares held and their individual price change proportionately.

Impact on investors: A reverse stock split does not change the total value of an investor’s holdings. If an investor owned 1,000 shares at _5 each before the split, after a 1-for-10 reverse split, they would own 100 shares at _50 each. The overall value remains _5,000. However, investors should be cautious, as reverse splits sometimes signal financial weakness or attempts to stabilize a falling stock price.

From a regulatory and market perspective, reverse stock splits must be executed in compliance with SEBI guidelines and approved by shareholders through a resolution. The process is typically accompanied by disclosures detailing the rationale and expected impact on share capital.

In conclusion, while a reverse stock split doesn’t alter a company’s intrinsic value, it can influence market perception and trading behavior. Investors should evaluate the company’s fundamentals and reasons behind the split before making investment decisions.