Rs 29,000 Crore Wealth Erased In 4 Days: Jio Financial Services Stock Tied In Lower Circuits; Should You Worry

There Are No Buyers, No Sight Of BULLS in the new entrant Jio Financial Services on stock exchanges. And Thursday was not different as Jio Financial stock continues to be tied in lower circuits. In four days, the NBFC stock has not only fallen by 20% but also saw an erosion of around Rs 29,000 crore of investors' wealth. The deep red in Jio Financial shares is due to heavy selling by institutional investors, and this has further postponed its exit from key indices to August 29. Should retail investors be worried about this sharp selloff in Jio Financial stock?

On Thursday, Jio Financial shares traded at Rs 215.90 apiece, which is the 5% lower circuit. Its current market cap is around RS 1,37,167.41 crore.

This would be a decline of more than Rs 29,000 crore in market cap compared to its market value of Rs 1.66 lakh crore at the listing price on August 21.

In four trading sessions, Jio Financial shares have fallen by 20%.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, "In view of the JFSL stock hitting the lower circuit on the third successive day, the stock getting removed from the key indices has been postponed to August 29th. Further circuit downs will necessitate further postponement."

Vijayakumar earlier explained that 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.

The recently demerged financial company from Reliance Industries was placed under BSE's 'T' group of securities which represents Securities that are settled on a trade-to-trade basis as a surveillance measure. They are also popularly known as the trade-to-trade (T2T) segment. Typically, stocks are put under this group to tackle unnecessary speculation in the stock. To protect retail investors from erratic price movements, exchanges only allow delivery trades under the T2T segment, which means they are not offered for intraday trading. Trading in stocks under this group has a restriction of 5% circuit limits both on the lower and upper end.

Jio Financial stock will be in the Trade-for-Trade segment for 10 trading days. That means they are not offered in intraday trading but instead on a delivery basis, which should not be a sign of worry for retail investors.

Hence, Vijayakumar added, "The stock will start trading in the rolling settlement from September onwards."

That is why Vijayakumar added, "The selling pressure on the stock comes from institutions who have to exit from the stock before it is removed from the indices. Further weakness in the stock will open up opportunities for long-term retail investors to buy the stock."

Jio Financial Services listed on August 21 at Rs 265 apiece, up by 1.20% from its fixed price of Rs 261.85 apiece in the pre-market price discovery session which was held last month.

Retail investors can wait and watch till the stock comes on an intraday trading basis. However, if the lower circuits continue, BSE has indicated that they could postpone Jio Financial's removal from indexes beyond August 29.

Earlier this week, BSE said the Index Committee has determined to postpone the removal of JFSL from all the S&P BSE Indices by another 3 days. JFSL will now be removed from all the S&P BSE Indices effective before the opening of trading on Tuesday, August 29. Previously, the stock was scheduled to exit from indices on August 24.

However, BSE also added that should JFSL continue to hit the lower circuit in the next 2 days, the removal date will be deferred by another 3 days.

It will be keenly watched if Jio Financial Services' exit from S&P BSE indexes will be delayed further, and whether this could influence more selling.

For now, retail investors are suggested to grab the opportunity of the decline in the stock for long-term positionings.

Here are the key highlights of Jio Financial Services business:

According to Kotak Institutional Equities report dated August 21, Jio Financial Services (JFS) will be the holding company for financial services businesses, likely benefiting from the reach of RIL's various businesses and technical capabilities. The focus will be to digitally deliver a range of financial products, which include consumer loans, merchant and MSME loans, and payments solutions, along with the existing payments bank, insurance broking and asset management.

Further, the brokerage highlighted that Jio Financial Services, formerly known as Reliance Strategic Investments) is (non-depositing systematically important) NBFC- ND-SI. It will convert to a core investment company (NBFC-CIC) within six months. JFS, as a CIC, will
operate its financial services business through its consumer-facing subsidiaries, namely Reliance Retail Finance Limited (RRFL), Reliance Payment Solutions Limited (RPSL) and Jio Payments Bank Limited (JPBL, operates as a JV) and Reliance Retail Insurance Broking Limited (RRIBL). The company has recently signed up with Blackrock for the asset management JV.

Disclaimer:

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.