Revolutionary Debut: Jio Financial Services Skyrockets with 1.18% Premium in Spectacular Market Entry!

The shares of Jio Financial Services Ltd (JFS), the separated financial arm of Reliance Industries Ltd, marked their debut on the BSE at a price of Rs 265 each, presenting a 1.18% premium over their determined value of Rs 261.85 per share on July 20. Within the first five minutes of trading, the stock experienced fluctuations, reaching a high of Rs 278.20 and a low of Rs 253.30. Over at the NSE, the stock made its entrance at Rs 262 per share. This entrance established JFS with a market capitalization of Rs 1,68,362.03 crore. The stock has been included in BSE’s ‘T’ group securities for trading.

During the previous week, JFS shares were allocated to eligible shareholders of Reliance Industries (RIL) in a 1:1 ratio. The price that was determined for JFS shares, based on the record date of the corporate event, notably exceeded the market’s expectations, which had placed it within the range of Rs 160-170 per share.

CLSA, a prominent brokerage firm, highlighted that apart from the stake in RIL, JFS also inherited assets worth $2.5 billion or Rs 33 per share. This endowment could potentially provide robust support for a loan portfolio of $13-15 billion, according to CLSA’s projections. The brokerage emphasized that even if JFS manages to match the recent annual expansion rate of the loan book seen in sector leader Bajaj Finance, it would still require nearly three years to fully capitalize on these funds. CLSA observed that most lending financial institutions typically trade below a 3 times price-to-book ratio, except for Bajaj Finance and Chola, which boast impressive return ratios of over 20%.

Regarding JFS’s status in key domestic benchmark indices, CLSA noted that it will be removed after three days, possibly prompting selling by passive funds. CLSA also noted that its India-focused portfolio, which includes RIL shares, might consider exiting JFS based on the first 30-minute weighted average price since it generally favors investments in banks.

With a significant core book at its disposal, JFS’s immediate need to divest its stake in Reliance Industries is considerably reduced, as indicated by CLSA.

For the initial 10 trading sessions, JFS shares will remain classified in BSE’s T Group, and no intraday trading will be permitted.

The demerger of the financial services division is anticipated to unlock value for RIL shareholders and provide an opportunity to participate in a fresh growth avenue, as outlined in RIL’s recent annual report.

Upon the completion of the third day of listing, which falls on August 24, JFS shares will be removed from Nifty and Sensex. Passive outflows could potentially occur, as suggested by Abhilash Pagaria from Nuvama Institutional Equities. Various theoretical scenarios point towards passive selling based on different price scenarios for JFS.

To recap, the demerger record date was July 20, with the determined price of Rs 261.85 calculated using the difference between RIL’s closing price of Rs 2,841.85 on July 19 and its ex-demerger price of Rs 2,580 in the pre-open session. JFS shares were allocated to eligible RIL shareholders at a 1:1 ratio during the previous week.

Additionally, it’s worth noting that Jio Financial is scheduled to be delisted from FTSE Indices and assigned a value of zero on August 21. In simpler terms, FTSE passive trackers will gradually phase out the assigned value to JFS shares following the commencement of Jio’s trading. However, MSCI Index will retain the inclusion of JFS shares.

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