The demerged financial services unit of Reliance Industries Limited saw its share price at a higher-than-expected value of Rs 261.85 during a particular trading session held on Thursday. The new entity, Jio Financial Services Ltd (JFSL), was valued at a much higher level than analysts expected it to be priced at, ranging from around Rs 160 to Rs 189 per share. It is a significant move for one of India’s wealthiest men, Mukesh Ambani, as it helps him get closer to his vision of creating an ecosystem similar to that of Alibaba Group Holding and Tencent Holdings in China, where customers would be able to access all financial and e-commerce services under a single roof.
To ensure that the JFSL stock price discovery was as accurate as possible, the new company underwent a special trading session wherein investors were allowed to buy and sell the shares of the demerged firm at the market-determined price. The price discovery process must be followed by all companies that undergo a demerger and is designed to help minimize price swings in benchmark indexes and keep the volatility under control.
As part of the demerger, RIL shareholders will receive one share of the new entity for all their existing Reliance Industries shares. This value discovery of the newly formed company will play an essential role in the entity’s valuation, a key factor determining how much funds the company can raise in the capital markets.
Investors will also watch how the Jio Financial Services shares fare in the coming days. According to experts, the new firm can leverage the data available from Reliance’s telecom and retail operations to initiate lending activities shortly. In addition, the newly listed entity is likely to garner a high rating for its creditworthiness by the credit bureaus.
While the stock is still trading below its initial public offer (IPO) price, it has already attracted the attention of several investors and institutions. Among them are foreign portfolio managers who have started allocating funds to the stock and domestic mutual fund houses.
Meanwhile, the parent company, Reliance Industries Limited, witnessed its stock trading at Rs 2,580 apiece on the same day. The company’s previous closing price was Rs 2,841.85 on Wednesday. The company’s share was included in the Nifty 50, and other indices at a constant price of Rs 273 based on the price arrived during the special pre-open session. Jio Financial Services will remain in the Nifty and other indices at this price for three days, after which it will be removed. This temporary measure allows volatility to settle in and lets investors adjust their portfolios accordingly. This is the first time Indian exchanges have used this method of price discovery for companies undergoing a demerger. Until now, they have always followed the traditional method of calculating index values based on the last traded prices.
