Stock Crash: Jio Financial Witnesses a 18% Drop Since Market Debut

Jio Financial Services Limited (JFSL), which was previously named Reliance Strategic Investments, was demerged from its parent entity Reliance Industries Limited (RIL) and taken public, with its stock priced at ₹265 per share on the BSE and ₹262 per share on the NSE on Monday. The stock has been trading at a discount of almost 18.57% since its listing.

When a large-cap stock drops over 5% for four consecutive trading sessions, stock exchanges halt trading on that stock to curtail investor losses. It is known as a lower circuit. Jio Financial shares have been locked in a 5% lower circuit since its listing took the share price down from ₹262 to ₹213 as of 24 August. The fall in the share price can be attributed to the selling pressure by institutional investors and passive funds.

The future growth prospects of JFSL appear bright since the company has the potential to scale up its business hugely with its enormous connection with consumers and merchants. On Tuesday, LIC acquired 6.66% stakes in Jio Financial Services.

Why is the stock being sold?

Analysts believe that the decline in JFSL's performance can be attributed to the institutional investors of RIL who are hesitant to include NBFC stocks such as Jio Finance in their portfolios. Mutual funds, which received 1 JFSL share for every RIL share they held, are also anticipated to offload these shares. The short-term prospects remain unclear due to uncertainty regarding the company's strategic direction and profit potential.

Analysts at Nuvama noted that stock's possible exit from benchmark indexes alone led passive funds to dump about 90 million shares. It is anticipated that 55 million shares of JFSL might be sold before the stock exits the major indices. 

JFSL has been placed under the T2T segment for the first 10 days, and a 5% circuit limit applies to the stock. Intraday trade and “buy today, sell tomorrow” are also not allowed on the stock. Therefore, institutional selling has driven the stock lower, selling from index fund is expected as Nifty50 and Sensex is excluding the stock on August 29. 

Eye on the AGM

The upcoming event that investors are keenly anticipating is Reliance Industries' annual general meeting (AGM) on August 28. Both investors and market experts are optimistic about announcements regarding the business strategies of the recently listed company. Currently, there's significant anticipation surrounding Jio's collaboration benefits with its parent company and its data-driven plans for the future. Industry specialists believe that the company is in its early stages and the upcoming quarters will be crucial in determining its business

Jio Financial likely to be removed from Sensex

On July 20, JFSL was temporarily added to major stock lists to give RIL a chance to trade with its separated unit.

Though JFSL was set to be removed from major stock lists like Nifty and Sensex on August 23, the removal was delayed. Due to a consistent drop in its stock price over three days, the stock exchange decided to postpone its removal to August 29.

About Jio Financial Services Limited 

According to Jio Financial Services’ memorandum, the company will operate through four verticals: retail lending, asset management, insurance broking, and digital payments. The entry of the company into the NBFC space has stoked concerns about a disruption similar to the one in the telecom business. 

Reliance Industries holds 46% of Jio Financial's stakes. The board of the company includes veteran banker K V Kamath, while Hitesh Sethia is the chief executive officer (CEO) and Charanjit Attra holds the position of chief operating officer (COO). Isha Ambani and Anshuman Thakur are the non-executive directors of the company.

The company has a market cap of ₹1,44,378 crore, with almost zero debt making it the most valuable company in India and the third-largest NBFC after Bajaj Finance and Bajaj Finserv. Its market cap is also higher than many Nifty 50 blue chips including Hero MotoCorp, Britannia, and Grasim Industries.

The company has already entered into a 50:50 joint venture with BlackRock for the asset management business in India, with an initial investment of $150 million each from both partners.

Jio Financial Service has a P/E of 5456 which is the highest in the sector compared to other peers like Bajaj Finance and Bajaj Finserv which stands at 35.05 and 33.48 respectively.