Selling by funds spoils Jio Financial market debut

However, analysts said the stock would likely turn attractive once the near-term pricing pressure abates, thanks to its ability to leverage the ₹1 trillion of net worth bestowed in the form of Reliance Industries Ltd (RIL) treasury stock that emanates from the 2002 merger of Reliance Petroleum Ltd with RIL.

The stock plunged to hit the 5% lower circuit at ₹248.9, shortly after listing at ₹262 on National Stock Exchange (NSE), a tad above its discovered price of ₹261.85 on 20 July, the date of the demerger. The listing on BSE was slightly higher, at ₹265. But here, too, the stock hit the 5% lower circuit of ₹251.75 shortly after listing and remained frozen at that level.

“I think ₹200-225 could be attractive entry points, given the company’s pedigree and financial heft, courtesy of RIL,” said independent market consultant Ambareesh Baliga. Baliga, however, said the sale by passive funds could have induced selling by high-net-worth investors and retail investors too, whose sentiments were “soured” by the institutional selling.

Brokerage Nuvama estimated in a 20 July note that passive funds tracking the Nifty could sell around 90 million shares worth approximately $290 million, while passive Sensex trackers could sell around 55 million shares worth about $175 million.

“It’s probable that the selling pressure by funds could extend the downside, but a level of around ₹200 (close to the book value) would be an attractive proposition for retail investors,” said the retail head of a large brokerage on condition of anonymity.

The order book on NSE showed a sell quantity of 209,900 shares at ₹248.9, which found no takers at that price, while that on BSE showed a sell quantity of 131,738 shares at a price of ₹251.75, which did not attract any bids.

This shows selling pressure could continue as Jio Financial is tipped to exit the indices on 24 August so long as it doesn’t hit the 5% price band on Tuesday. If it does, Nuvama expects the exit from the indices to be deferred by another three days, after which there would be no deferment.

Despite the stock ending lower on the exchanges, its market cap of ₹1.58 trillion makes Jio Financial India’s third most-valued non-banking financial company (NBFC) after Bajaj Finance Ltd and Bajaj Finserv Ltd, but ahead of Cholamandalam Investment and Finance Co. Ltt and SBI Cards & Payment Services Ltd.

Jio Financial’s net worth has got a boost thanks to RIL transferring its treasury stock, aggregating to a 6.1% stake in the company, to it. The treasury stock was held by a petroleum trust shortly after the merger of its subsidiary Reliance Petroleum with itself in 2002.

With the Reserve Bank of India (RBI) mandating the capital adequacy ratio of NBFCs at 15%, rough calculations show Jio Financial can leverage its reserves of over ₹1 trillion by 6.6 times or potentially lend as much as ₹6.6 trillion.

The focus of the company is to digitally deliver a range of products, including consumer, merchant and MSME loans, payments solutions, insurance broking and AMC (asset management company) services, the last thanks to a joint venture with BlackRock. Analysts believe that, like Reliance disrupted the retail, telecom and refining spaces earlier, it would attempt to do the same with financial services.

Last year, Reliance Industries appointed veteran banker K.V. Kamath as the non-executive chairman of Jio Financial Services, who has entrusted a former colleague from ICICI Bank to help build a team. Manish Singh, the former ICICI Bank executive, was the first lateral hire made by Kamath, Mint reported in November. That apart, Reliance has hired former ICICI Bank executive Hitesh Sethia to lead Jio Financial Services.

Baliga believes Jio Financial is too big to ignore, with its market cap bigger than that of nine Nifty constituents, including UPL, Hero MotoCorp and Apollo Hospitals, which have market capitalizations below ₹1 trillion. This could potentially make it a Nifty candidate by next year. For a stock to qualify as an index heavyweight, it has to be listed on the exchange’s F&O segment. The NSE runs an F&O review twice a year, in April and October, when it factors in six-month data to determine the eligibility of a stock to be included in the F&O segment. Since Jio Financial has listed only now, it will have to wait for the review in April next year.

Shayan Ghosh from Mumbai contributed to this story.

Updated: 22 Aug 2023, 12:24 AM IST