 "Jio Financial Services reels under selling pressure, loses 5% again")
Shares of Jio Financial Services — hived off from Reliance Industries (RIL) — hit their 5 per cent down limit for a second day in a row, prompting exchanges to defer its exclusion from benchmark indices.
The stock finished at Rs 239.2, compared to its previous day’s close of Rs 251.8. On the National Stock Exchange (NSE), it closed at Rs 236.5, down from the previous day’s close of Rs 248.9.
On both exchanges, about 7.8 million shares were traded, only a tenth of the 78 million traded a day earlier, when they made their trading debut.
Jio Financial is now valued at Rs 1.5 trillion, having shed nearly Rs 16,000 crore in market value. During a special price discovery session held on July 20, the Mukesh Ambani-led firm was valued at Rs 1.66 trillion.
Incidentally, the benchmark NSE Nifty and the S&P BSE Sensex had logged their all-time highs of 19,979 and 67,571.9 on the same day and have come off by close to 3.5 per cent since then.
Sriram Velayudhan, senior vice-president at IIFL Securities, said the fall in Jio Financial shares is also partly sentiment-driven.
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“The market has come off in the past month, and the ensuing selling by passive funds and potential encashment of shares issued in lieu of global depositary receipts (GDRs) held are keeping a lid on prices,” he said.
Analysts predict exchange-traded funds (ETFs) and index funds linked to the Nifty and Sensex will sell shares worth $400 million of Jio Financial as they will no longer be required to hold the stock. Additionally, GDR holders of RIL are expected to offload shares worth $500 million.
These classes of investors have been allotted shares of Jio Financial due to their holdings in parent RIL.
Market players said Jio Financial shares could slide further if there is a lack of demand to absorb the $900 million (nearly Rs 7,500 crore) selling pressure.
Meanwhile, BSE and NSE have announced that Jio Financial will be removed from their indices on August 29 as the stock has hit a lower circuit for two straight days.
If the stocks continue to hit their down limit, the exclusion could be deferred further to ensure ETFs have a smooth exit. The stock continues to be part of global indices such as Morgan Stanley Capital International and Financial Times Stock Exchange, which has helped mitigate the selling pressure.
“Jio Financial’s present weight in the Nifty50 and Sensex is approximately 1 per cent, and the mandatory selling is anticipated to involve around 150 million shares (worth about Rs 3,500 crore at last close). Considering that the Reliance annual general meeting (AGM) is slated for August 28, we could anticipate a business road map being unveiled, potentially leading to eased price pressure,” said Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research.
Since Jio Financial is yet to start its full-scale operations, analysts are finding it difficult to assign a fair value to the stock and are awaiting more cues from the company.
“Based on the latest prospectus filed on August 18, Jio Financial’s networth for Tier-1 purposes is closer to Rs 20,000 crore. In line with leverage levels for other unsecured lending non-banking financial companies (NBFCs), if Jio Financial can leverage this 4x in the medium term, it could create assets under management of Rs 80,000 crore in the next four/five years,” said Suresh Ganapathy, head of financial services research at Macquarie Capital, in a note.
“We will be closely watching the RIL AGM on August 28 to see the plans for Jio Financial,” he added.
Analysts at Nomura believe it remains to be seen if RIL is able to replicate its “impressive” disruptive strategy in the retail and telecommunications segments in the financial space.
“Building and testing these systems and underwriting algorithms may take a considerable amount of time. Further, Jio Financial’s execution capabilities will become clear only with time. Aggression in unsecured loans by other NBFCs is leading to increasing leverage at the system level, as evident from rising delinquencies. We are watching for aggression levels from Jio Financial in unsecured lending to assess the impact on NBFCs and system-level leverage,” they said.
They further said that if Jio Financial gets the same top-notch ‘AAA’ rating as parent RIL, it “would have a big advantage in terms of lower cost of funds”.
Jio Financial holds a 6.1 per cent stake in RIL, which is currently valued at a little over Rs 1 trillion. However, Nomura said this is not included in capital ratio calculations, limiting Jio Financial’s leverage capabilities.