Shares of Jio Financial Services Limited (JFSL), the demerged financial services business of Reliance Industries Limited (RIL), hit their lower circuit limits for the fourth consecutive trading session amid likely selling by both passive funds and active mutual funds.
JFSL on Thursday saw its shares locked at 5 percent lower circuit limit of Rs 213.45 on the NSE.
According to analysts, the weakness on the counter is driven by institutional selling but the outlook for the shares of Jio Financial is positive.
"JFSL's valuation is based on expectations surrounding its future growth potential and its 6.1 percent stake that it owns in RIL. The future growth prospects of JFSL are indeed bright since it can scale up its business hugely with its enormous connection with consumers and merchants. But institutional selling is a drag on the share price in the near-term. Since the stock is in the T segment institutional selling is dragging the price down," said Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
T group of shares are those actively traded at stock exchanges but with certain restrictions such as a 5 percent circuit filter and permitted only for delivery trading.
JFSL index exclusion delayed
Jio Financial Services will now be excluded from the Sensex indices on August 28 instead of August 23. However, there has been no official communication from the NSE on the Nifty exclusion timeline yet.
Earlier, JFSL was to be excluded from both Sensex and Nifty indices on the third day after their listing.
JFSL shares will now be removed from all S&P BSE indices prior to the opening of trading on Tuesday, August 29. However, in case the stock ends in a lower circuit for the next two sessions as well, the removal date will be deferred by another three days.
Additionally, in case the shares do not hit a lower circuit on either of the two days but end on a lower circuit on the third day, the removal will be deferred by another three sessions.
In the coming days, JFSL shares will likely see more selling pressure from index funds as Nifty50 and Sensex will exclude the stock. The stock's ouster from Nifty may alone lead to selling of 90 million shares from passive funds. Those tracking Sensex are expected to sell another 55 million shares of JFSL, estimated brokerage Nuvama.
Anirudh Garg, Partner & Head of Research at Invasset PMS, said the stock of JFSL looks reasonably valued. "Our analysis suggests that JFS has the capability to establish a loan book of approximately $50 billion till March 2025. Drawing parallels with the valuation metrics applied to Bajaj Finance, Jio Financial's valuation at current levels seems reasonably justified."
"The current correction is largely associated with index adjustments, with an anticipated offloading of roughly $500 million by passive funds on a global scale," Garg noted.
According to market expert Hemang Jani, "There are certain technical factors —almost about 3.5 to 4000 crore selling is happening because of the selling by the index funds, at the same time you will see buying because of the inclusion in the MSCI and a couple of global indices. This will happen probably over next, let's say 3 to 5 day period. So short-term, the stock could remain a bit subdued."
"But I don't see much of a downside from current levels because of the fact that the market cap is around 1,60,000 crore, and the way the entire opportunity is coming up and the way the company has gone about building the team, the way the business plans are going to unfold, so I think for, let's say 2 to 3 years, this could be a great opportunity. Something similar to maybe an HDFC Bank that got listed way back. But short term, I think because of these technical factors, you might see a bit of a subdued moment," Jani noted.
Jio Financial will be in the Trade-To-Trade (T2T) segment for 10 trading days. Under the T2T segment, stocks have to be bought only under the delivery method and are not eligible to be traded on an intraday basis. The stock will have a five percent circuit filter for the next ten trading sessions.
"When a stock is expected to move to high volatility, it is put under trade-to-trade. The volatility in JFSL was expected since institutional selling was on the cards and interested buying too was expected. The volatility seen in the stock after listing justifies the decision to move the stock to the T segment. Investors who are optimistic about the stock can buy from the market for delivery without any restrictions," Vijayakumar said.
(Edited by : C H Unnikrishnan)
First Published: Aug 22, 2023 2:35 PM IST
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