Jio Financial (NSE: JIOFIN) shares are down 5% again. JIOFIN was actually down at the open and hitting the circuit breakers from minute on 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.
Today was actually worse than yesterday: “Shares of Jio Financial Services (JFS) hit their lower circuit limits for the second straight session amid concerns over passive outflows. The demerged financial services business of Reliance Industries saw its shares locked at 5 per cent lower circuit limit of Rs 239.20 on BSE. They were down 5 per cent over their discovered price of Rs 261.85 in the previous session. Analysts said the weakness on the counter is driven by institutional selling and that the outlook for the counter is positive.” Well, we’re not sure about that positive outlook. Sure, at some lower price then the future will start to look positive. But there could be a long way to go before we reach that bottoming out price.
Jio Financial share price from Google Finance.
The problem here is that the market isn’t being allowed to do its job of price discovery. Yes, yes, we know, the authorities want to see orderly price changes. But if something is overpriced then that’s what the market is all about - the discovery of what is the right price. Which this isn’t doing:
Jio Financial from NSE
As we said yesterday about Jio Financial: “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.”
We could be in for days more of this, limit down at the open and then a repeat the next day. This really isn’t how price discovery should be done.
