Jio Financial (NSE: JIOFIN) shares are back up to their offer price. JIOFIN shares slumping against the price limits for 5 days in a row, then climbing all the way back again just show how silly - ridiculous even - those price limitation rules are. Sure, OK, circuit breakers in a time of extreme volatility, could be a good idea. Maybe - there are plenty of economists who would suggest not so much actually but opinion is divided. But the idea of 5% price limits is absurd. As this whole Jio Financial episode tells us.
For look at the performance of the share price:
Jio Financial share price from Google Finance
The entire point of having a stock market is so that we can gain price discovery. What’s this thing worth? Well, that value is determined by how many wish to buy it and how many wish to sell at varied prices. So, we have to allow prices to vary so that we can find out what is that balancing point where supply meets demand. Which is exactly what limiting price movements prevents.
We have said this about JIOFIN: Jio Financial (NSE: JIOFIN) shares are down 5% again. JIOFIN was actually down at the open and hitting the circuit breakers from minute one of trading. A reasonable conclusion from this is that the IPO was at too high a price. Given a 10% drop in the two days that seems like a reasonably certain statement in fact. But what’s worse is that the price limits on trading make the issue worse. The uncertainty about the valuation means that Jio Financial should be allowed to float free - that’s the only way we’ll get to an agreed valuation after all.
Indeed, we’ve continually made the complaint about Jio Financial: “Jio Financial has actually dropped the maximum amount the circuit breakers will allow each of the three days since its IPO. This showing us one of the problems with having such circuit breakers. The entire point of our having a stock market is so that we gain price discovery.”
Then the price finally turns at Jio: “Jio Financial (NSE: JIOFIN) shares are up 1% and change today. That means JIOFIN shares have finally ceased their limit down day by day fall from the IPO price. That it has taken 5 days to get to this point reveals why the Indian stock exchanges have some work to do before they become considered a major part - even a reliable part - of global capitalism.”
Since then Jio Financial shares have been rising against that same 5% price limit each day. We really are back to where the IPO price started. But it’s taken us days and days to do so, to gain that price discovery. It would have been so much simpler if the markets simply allowed prices to move as they wished in the first place. Would have been a bit busy, ew agree. But what, other than delay and uncertainty, has been gained by the price movement limits? Nothing. So, better to not have them then.