Jio Financial shares hit lower circuit for 3rd day; should you buy after deferred exclusion from indices?

Shares of Jio Financial Services (JFS) hit lower circuit for the straight third session in a row. The series of circuits have resulted in a delay in its exclusion from the stock indices, including BSE Sensex and Nifty50. The exclusion of the stock was slated to be deferred if it hit two straight days of the three-day period, but the stock was locked in the seller's circuit for all three sessions.

Asia Index Private Limited on Tuesday said its index committee has decided to postpone the removal of Jio Financial Services from all the S&P BSE indices by another three days. Originally, Jio Financial Services was scheduled to be excluded from stock indices from Thursday, August 24.

Shares of Jio Financial Services crashed another 5 per cent, its daily circuit limit, to Rs 227.25 on Wednesday, with a total market capitalization less than Rs 1.45 lakh crore. The scrip is down more than 15 per cent since its listing at Rs 265 per share on Monday.

Analysts said the weakness on the counter is driven by institutional selling and that the outlook for the counter is positive. Mutual fund adjustments, particularly from the passive funds, might trigger certain outflows, they said. However, they suggest that investors should look at valuations in the longer run, once the selling panic is over.'

Watch: Jio Financial shares tank 15% in 3 days; hit lower circuit for 3 days straight; what's dragging the stock and what should investors, JFS shareholders do?

Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities said the stock is under selling pressure as investors who would have bought the shares purely to benefit from demerger would like to book profits, if they get a higher price than their initial investment in erstwhile Reliance Industries (RIL).

"Financial services is a business with several established players. JFSL comes with a solid parentage, technology and financial backing. But it will still take its own time to set up businesses and make a dent on the competition. Investors shouldn’t expect miracles in the short to medium term. Only investors who have a horizon beyond 5 years can consider holding on to the stock," he said.

The stock of Jio Financial has been listed in the T-group segment of the bourses for the initial ten days of the listing. This means that intraday trading won’t be possible in the stock and there will be a circuit limit of only 5 per cent for both buyers and sellers. This will restrict any major moves in the stock.

There are certain challenges and factors affecting the company's performance. The company needs to obtain regulatory approvals, particularly in sectors like life and general insurance. The process for such approvals can be time-consuming and may impact the company's ability to offer a full suite of services in the near term, said analysts.

It is expected that JFS might continue to witness more selling pressure. JFS operates in a highly competitive market and has to compete with top 20 players being well-capitalized and have demonstrated business models with an established customer base, said Mahesh M Ojha, AVP - Research at Hensex Securities.

"The fair value of JFS is likely to be around Rs 180. We believe investors shall await the detailed presentation from the company’s management expected on Monday, August 28. The presentation shall shed more light on the company's exact valuation and strategic direction," he said. Overall we suggest retail investors and JFS existing shareholders should wait for stabilization of JFS."

Jio Financial presents a promising and well-structured business model. JFSL has already announced a 50:50 joint venture entity with BlackRock to enter the mutual fund industry and the the market eagerly awaits the unveiling of upcoming strategies for Jio Financial, said Shrey Jain, Founder and CEO at SAS Online, a discount broker

"In the short term, stock might be somewhat illiquid at present, which could lead to short-term volatility. However, medium and long-term prospects are robust, offering a positive outlook. Current shareholders are advised to retain their holdings, while those considering an investment can confidently make a purchase at this time," he added.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

Also read: Jio Financial shares in focus as exclusion from Sensex, Nifty, other stock indices deferred by 3 days

Also read: Brightcom Group shares in focus after Sebi order on CMD, CFO, Shankar Sharma