Jio Financial Services Share Price Downtrend: 4th Consecutive Day of 5% Drop
Jio Financial Services
Jio Financial Services: Delisting from Indices Delayed to August 29 Amid 4-Day 5% Share Price Drop
Jio Financial Services, which made its stock market debut on August 21, is facing a challenging start, with its shares hitting a lower circuit of 5% for the fourth consecutive day on August 24.
The company’s shares have been on a downward trajectory since its listing, and this decline is primarily attributed to the selling activities of passive funds.
Interestingly, passive funds are shedding Jio Financial’s shares even before its scheduled exit from the Nifty and Sensex indices.
To understand this situation better, let’s delve into the concept of passive funds and the dynamics surrounding Jio Financial Services’ recent developments.
Understanding Passive Funds
Passive funds are investment vehicles that mirror market indices like the Nifty and Sensex. These funds operate on a passive strategy, meaning they do not involve active management by fund managers.
In the case of Jio Financial Services, its shares are held by numerous passive index funds that replicate the performance of the SENSEX-30 and NIFTY-50 indices.
The Inclusion of Jio Financial Shares
The inclusion of Jio Financial shares in passive funds stems from the demerger of Reliance Industries. Since Reliance Industries is part of both the Sensex and Nifty indices, when the demerger occurred, shareholders received shares of Jio Financial Services.
Notably, a circular issued by the NSE in March 2023 stated that in cases of index component demergers, the demerged entity would also become part of the index unless it is separately listed.
The Selling by Passive Funds
However, the twist arises after the separate listing. The new company, in this case, Jio Financial Services, is slated to remain in the indices for three days, after which it would be delisted.
If the stock hits its circuit during the first two days, the delisting process is deferred for an additional three days. This eventual delisting prompts passive index funds to sell shares in order to mitigate tracking error.
Quantifying the Selling Pressure
According to Nuwama Alternative and Quantitative Research, Nifty and Sensex fund trackers have an estimated 145-150 million shares to divest.
Selling Volume So Far
- Delivery Volume on August 21: 7.83 crore shares
- Delivery Volume on August 22: 78 lakh shares
- Delivery Volume on August 23: 47 lakh shares
The cumulative selling in the initial three days accounted for approximately 9.08 crore shares. Assuming these shares were indeed offloaded by passive funds, there could still be around 5.4 to 5.9 crore shares remaining with them.
Delisting Delay and Revised Schedule
Despite the planned delisting of Jio Financial Services due to hitting the circuit in the first two days, the stock’s exit from the indices was postponed.
Instead of the previously announced date of August 24, the company is now set to be removed from the indices on August 29.
In conclusion, Jio Financial Services’ shares have encountered a bumpy start with a 5% drop for four consecutive days.
The influence of passive funds, the process of delisting, and the subsequent selling activity have played a pivotal role in this situation.
As the countdown continues toward the new delisting date of August 29, market observers and investors will be keenly watching for any signs of stabilization in Jio Financial’s share price.
