Reliance Share Price: Why Reliance Share is Falling
Reliance Share Price
Reliance Industries Share Price Anticipated to Decline Amid Demerger with Jio Financial Services
In an upcoming trading session, the share price of Reliance Industries (RIL) is expected to witness a potential decline. The reason behind this anticipated drop is the impending demerger of its financial services arm, Jio Financial Services (JFS), which is scheduled to be listed on the market on the following day.
Investors and traders are advised not to be overly concerned if they observe a downturn in the share price of Reliance Industries.
This decline will be a consequence of the separation of JFS from RIL under the leadership of Mukesh Ambani. During the pre-open session on 20th July, the market will determine the standalone valuation of RIL, without taking Jio Financial Services into account.
Analysts have assessed the value of JFS shares to be in the range of Rs 160-190 per share. Consequently, the share price of Reliance Industries may decrease by an amount equivalent to the valuation of JFS shares, approximately between Rs 160 to Rs 190 per share.
It is important to recognize that such fluctuations are not uncommon during corporate restructuring events like demergers. Investors should carefully assess the long-term prospects of both Reliance Industries and Jio Financial Services before making any investment decisions.
Understanding the Pre-Open Auction Session for Jio Financial Services’ Valuation
The pre-open auction session scheduled for July 20, between 9 am and 10 am, holds significant importance in determining the market’s valuation for Jio Financial Services (JFS), the demerged entity of Reliance Industries (RIL).
This session plays a vital role in facilitating price discovery, which is crucial for establishing the initial trading range of JFS shares on their listing day. Notably, regular trading in RIL shares might not be available until 10 am to accommodate this process.
The primary objective of the pre-open auction is to provide traders with an opportunity to gauge the prevailing sentiment on the street and assess the fair value of Reliance Industries after the demerger of Jio Financial Services.
This is particularly important since the demerger would significantly impact RIL’s valuation as the market values it without considering the JFS segment.
During the pre-open session, market participants, including traders and investors, will have the chance to place orders to buy or sell Jio Financial Services shares.
Based on these orders, the auction system will calculate the price at which the maximum number of shares can be traded, which is referred to as the “discovery price.”
To illustrate, let’s assume that the closing price of RIL shares on July 19 stands at Rs 2,000 per share. This closing price will serve as the starting reference point for the valuation of JFS.
On July 20, during the pre-open auction, if the calculated discovery price settles at Rs 1,800 per share, it would mean that JFS shares will be valued at Rs 200 apiece (Rs 2,000 – Rs 1,800).
This difference between RIL’s pre-demerger closing price and the discovery price will be instrumental in determining the initial stock price of Jio Financial Services.
It is important to note that the initial stock price derived from the pre-open auction will act as a reference point for the first trades of Jio Financial Services on its listing day.
However, once regular trading in JFS shares commences at 10 am, their prices will be influenced by market forces, demand, and supply, potentially causing fluctuations in their value throughout the trading day.
Traders and investors must pay close attention to the dynamics of the pre-open auction and subsequent trading to make informed decisions regarding their investments in Jio Financial Services’ shares.
The process of price discovery during this session aims to establish a fair and transparent market valuation for JFS, enhancing confidence and efficiency in the overall trading process.
Jio Financial Services Valuation: Insights from Market Experts
In the context of Reliance Industries’ (RIL) demerger announcement, Jio Financial Services (JFS) emerges as an exciting new venture, sparking interest among market analysts and experts.
The demerger involves the spin-off of RIL’s 6.1% treasury shares, which is set to be rebranded as Jio Financial Services.
Nuvama, a prominent market observer, shared insights into past demergers involving RIL in 2005. Surprisingly, the market rewarded RIL during that time, witnessing a remarkable 38% increase in shareholder wealth following the split.
With this precedent in mind, Nuvama believes that the current demerger is likely to have a positive impact on RIL’s stock, projecting a potential upside of 3-5%.
The valuation of Jio Financial Services comes into focus, with Nuvama estimating the value of RIL’s treasury shares at Rs 117 each, constituting 4% of RIL’s closing price on July 14, which stood at Rs 2,740.7 per share.
Notably, this valuation assumes a 30% holdco discount, and without it, the valuation per share would amount to Rs 168, representing 6% of Friday’s closing price, excluding the discount.
Axis Securities, another market expert, takes a different approach to assess JFS’s valuation. They value Jio Financial Services at the treasury stock valuation of Rs 1,08,597 crore, which is equivalent to 1x RIL’s treasury stock valuation.
Considering JFS’s total outstanding shares of Rs 676.6 crore, this calculation indicates that each share of JFS would be valued at Rs 160.
It is important to note that both Nuvama and Axis Securities assume the same shareholding pattern for JFS as that of Reliance Industries, which provides an essential context for their valuations.
Axis Securities defends their approach by stating that the business model of Jio Financial Services is yet to be announced, making it reasonable to value the company based on its treasury stock for the time being.
Moreover, the availability of these treasury stocks might allow the company to leverage them for regulatory funds, further strengthening its financial position.
With differing perspectives on JFS’s valuation, investors and traders are closely monitoring the developments surrounding the demerger.
The launch of Jio Financial Services as a separate entity holds the promise of unlocking potential value for both RIL and its shareholders, making it a significant event to watch in the market.
As the business model of JFS unfolds, the true potential of this new financial services venture will become clearer, impacting the overall perception of its valuation in the market.
