Jio Financial Falls 5% For The Second Day In Row, Delaying Index Removal

Jio Financial Services (JFS) slid 5 per cent for a second straight day on Tuesday, triggering an exchange rule that will delay its removal from the country's benchmark indexes.

Still, analysts warned, that index-linked funds could see distorted weights for longer if fund managers cannot sell their JFS holding as soon as possible, which could be made tougher by the continuous slide and reducing trading volumes.

JFS shares opened down 5 per cent, mirroring the decline in their trading debut on Monday and triggering a circuit breaker, as funds offloaded the stock they got after JFS was spun out of billionaire Mukesh Ambani's Reliance Industries.

JFS was automatically included in the benchmark Nifty 50 and Sensex indexes, due to Reliance's presence, with the plan to remove the stock at the end of 23 August.

That will now be delayed by another three days until the end of 28 August as the stock has hit two consecutive lower circuits, the Bombay Stock Exchange said after the market closed.

The two-day drop has lowered JFS's valuation to about USD 18 billion, from around USD 20 billion during a "price discovery" session in mid-July. The trading volume, however, slumped by about 90 per cent, possibly due to lacklustre interest, analysts said.

This compounds the worry for index-linked funds, which are supposed to mirror the components of the benchmarks.

"If after the sixth day, these are still no buyers, there will be a weightage distortion, a higher tracking error and we will have to hold the stock," said the manager of a passive index fund.

Once JFS is excluded from the indexes, it could seem more attractive, the manager said, declining to be named as they are not allowed to speak to the media.

JFS, which has said it intends to be a "full-service financial services player", holds a 6.1 per cent stake in Reliance.

Analysts have said investors will look for more clarity on JFS's business at Reliance's annual general meeting on 28 August.

"In the near term, JFS is unlikely to impinge on the terrain of banks. Initially, it could disrupt the digital and unsecured lending market done by fintechs and NBFCs," Macquarie analysts wrote in a note.

"Banks have a significant edge on the cost of funds and have built robust collection mechanisms, especially in the secured lending market which is far more difficult to scale up."