Jio Financial (NSE: JIOFIN) shares are down 5% today. JIOFIN shares can’t go any lower than 5% down because of the trading limits on such new share issues. So quite where this is going to go in the days ahead is unknown as it’s simply not possible for the price discovery process to work in real time. The trading limits mean that it will take days to find the true trading range. That might all sound a bit odd - it is odd as the aim of a stock market is to find the value of a stock - but that’s the way it’s done in India.
Jio Financial is a demerger from the Ambani controlled Reliance group. The Ambani’s still own 42% and at least so far have said that they intend to keep that stake. This then leaves us with trying to work out why the share price fall on this first day. Some say it’s all about technical issues: “Arbitrage traders who bought RIL stock only as a special situation opportunity to get one JFSL share for every RIL stock added to the selling pressure in the counter today. RIL shareholders who don’t want an NBFC stock in their portfolio were also seen exiting.” Well, yes, that’s one way of putting it. At open there was a wave of selling:
Jio Financial share price from National Stock Exchange
Trade pretty much stopped by 10.15 therefore as the circuit breakers came into action. “Shares of Jio Financial listed at Rs 262 per share on the exchanges on Monday but declined 5% in initial trade. The listing kicks off the value unlocking process undertaken by Reliance Industries, which demerged its financial services arm earlier this year.” That 5% is the maximum that a share can move in these first few trading days.
The reason for the demerger could also be the reason for the wave of selling: “After demerger, shareholders received one JFSL share for every Reliance share they possessed. The distribution of JFSL shares occurred last week, with the shares being added to shareholders' demat accounts.” The reason for the demerger is that Reliance shareholders might well not want exposure to financial services. Hopefully, others would like such exposure. But if those who want the exposure don’t turn up then those who wish to cycle out of finance face that falling share price under the wave of selling.
There’s a difficulty here in pricing Jio Financial caused by those circuit breakers. If the price can only move 5% per day then how many days until it finds its proper trading range?