Jio Financial Services declines 5% in debut session: Is it a good ‘buy’ for long term?

After a decent debut, shares of Jio Financial Services (JFS), the demerged financial services unit of Reliance Industries Limited (RIL), hit the 5 percent lower circuit to settle the day at ₹251.75 apiece on the BSE and ₹248.90 apiece on the NSE. This is below its discovered price of ₹261.85 after the special pre-open session held on July 20, 2023.

The stock listed at ₹265 on the BSE and ₹262 on the NSE, just a little higher than its discovered price.

On listing, the company's market capitalisation stood at ₹1.68 lakh crore, already making it the 33rd most valuable company in India and 3rd largest NBFC after Bajaj twins - Bajaj Finance and Bajaj Finserv. Its market cap is also higher than many Nifty 50 blue chips including Hero MotoCorp, Britannia and Grasim Industries. However, at close, the company's market cap stood near ₹1.60 lakh crore on the BSE.

The 5 percent decline in the stock in its debut session was mainly on the back of profit booking. But let's find out, is Jio Financial Services still a good ‘buy’ from a long-term perspective.

Deepak Jasani, Head of Retail Research, HDFC Securities: Jio Financial listed on Aug 21 at almost the derived price based on the trades done on 20th July, 2023. It has since fallen due to selling pressure by index funds who have a three-day window to exit from the stock which is not going to remain part of the indices. Although street participants are excited about the potential of the stock, they could wait till this selling pressure ebbs.

Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities: We expect that there could be some selling pressure in shares of Jio Financial Services (JFSL) as investors who would have bought the shares purely to benefit from the demerger would like to book profits if they get a higher price than their initial investment in erstwhile Reliance Industries Ltd (RIL).

The stock will trade on the bourses in the T Group segment for the first 10 days. This means that intraday trading won’t be possible in the stock and there will be a circuit limit of 5 percent either way. This will restrict major moves in the stock. Financial services is a business with several established players. JFSL comes with solid parentage, technology, and financial backing. But it will still take its own time to set up businesses and make a dent in the competition. Investors shouldn’t expect miracles in the short to medium term. Only investors who have a horizon beyond 5 years can consider holding on to the stock. Others are better off by exiting JFSL and entering a bank/NBFC with a fully functional business.

Santosh Meena, Head of Research at Swastika Investmart: Jio Financial Services' share listing commenced on a subdued note, possibly due to a higher-than-anticipated price discovery. Additionally, mutual fund adjustments might trigger certain outflows. While the short-term outlook is uncertain due to a lack of clarity about business direction and profitability, the long-term outlook remains optimistic, supported by its robust pedigree and extensive network—one of the industry's largest. The sector's bullish outlook further reinforces this perspective. Consequently, it's advisable for long-term investors to retain Jio Financial Services shares, while short-term investors can stay away. Anticipate potential insights into Jio Financial Services' future plans during the upcoming Reliance AGM.

InCred Equities: The net worth of JFS as on March’22 is ₹28,000 crore, including ₹17,000 crore paid for the treasury share of RIL. Thus, the core net worth is ₹11,000 crore. The value of Jio Financial Services' share price was derived at ₹261.85 after the special pre-open call auction session held on July 20, valuing the company at ₹1.67 lakh crore. At the discovered price, excluding the current value of investments (6.1 percent stake in RIL) worth ₹1 lakh crore, the core business is valued at ~6x trailing BV. We expect such euphoric valuations to hold for a while amid the expectation of robust organic growth as well as probable opportunities for inorganic growth available in the financial domain.

JFS can opt for a wide variety of financial service businesses including the lending business, digital broking, insurance, mutual funds, payments, etc. However, we do not remain alarmed towards threat for existing players as we believe loan origination through existing set of customers is important however other factors such as cost of funds, appropriate risk assessment as well as prudent recovery mechanism also play an important role for the success of a lender.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services: The market discovered price of ₹261.85 per share of Jio Financial Services had come much higher than most brokerages’ estimates. This high price is a reflection of the market’s assessment of Jio Financials’ potential. The wide reach of JFSL through RIL’s other business segments like Reliance Retail has the potential to grow the company at a fast pace for many years to come. The market is discounting this potential. There is a lot of enthusiasm about the stock and high optimism regarding its growth potential.

For the first 10 days post the listing, the stock will trade in the T Group segment on both BSE and NSE, which means that shares can be traded only on a compulsory delivery basis and intraday trades will not be possible. An investor cannot buy and sell shares of JFS on the same day, or before the shares are credited to the demat account. In that case, the order will be rejected. Also, the upper and lower circuit limit of the stock would be limited to 5 percent, restricting any major movement in the scrip.

On July 20, 2023, a special pre-open session was held for RIL and RSIL from 9 am to 10 am, during which RIL shareholders could buy or sell the RIL stock. In that session, RIL's NBFC unit Jio Financial Services' discovery price came out to be ₹261.85 per share, beating estimates of up to ₹170. Post that session, Jio Financial Services stock remained as a 51st Nifty constituent at this constant price till listing and did not trade.

Meanwhile, the stock will be removed from Nifty 50, three days after its listing, on August 24, 2023.

In the demerger, RIL has allotted one share of Reliance Strategic Investments Limited for every one RIL share to shareholders.

Jio Financial Services will primarily operate in the NBFC market and credit market segments and has strategic plans to expand its operations into insurance, digital payment, and asset management verticals.

"Jio Financial Services is positioned uniquely to capture the growth opportunities in the financial services sector and plays a crucial role in transforming the digital finance landscape in India," said RIL Chairman and MD Mukesh Ambani in the company's 2022-23 annual report.