Jio Financial continues slide, likely delaying index removal

File picture of people standing next to a logo of Jio Financial Services ahead of its listing ceremony at the BSE in Mumbai, on August 21, 2023
| Photo Credit: Reuters

Shares in India’s Jio Financial Services (JFS) slid the maximum allowed 5% for a second straight day on Tuesday, which will likely delay their exclusion from the country’s benchmark indexes.

JFS shares opened down 5% at ₹236.45 and stayed at that price. They ended 5% lower on Monday in their trading debut as funds continued to trim their holding, accumulated after JFS was spun out of billionaire Mukesh Ambani’s Reliance Industries .

Since Reliance is part of the benchmark Nifty 50 and Sensex indexes, JFS was automatically included, with the plan to remove them at the end of the third trading day — which had led to the heavy sell-off in the stock since their debut.

However, the stock exchange regulators had said JFS’s removal from the indexes on August 23 would be delayed if the stock hit the 5% upper or lower circuits for two days in a row.

The removal could be postponed by three days if the stock continues to trade at the lower circuit, said Abhilash Pagaria, Head, Nuvama Alternative & Quantitative Research.

Drop in valuation

JFS’s roughly 10% drop in the past two days has reduced its valuation to about $18 billion, from around $20 billion during a so-called “price discovery” session in mid July.

Reliance’s shares have fallen about 1% in the past two sessions. JFS, which has said it intends to be a “full-service financial services player”, holds a 6.1% stake in Reliance.

Analysts have said investors will look for more clarity on the scope of JFS’s business at Reliance’s annual general meeting on August 28.

“In the near term, JFS is unlikely to impinge on the terrain of banks. Initially, it could disrupt the digital and unsecured lending market done by fintechs and NBFCs,” Macquarie analysts said in a note.

“Banks have a significant edge on the cost of funds and have built robust collection mechanisms, especially in the secured lending market which is far more difficult to scale up.”