Why Jio Financial Services shares are hitting lower circuit everyday; Deepak Shenoy explains

Jio Financial Services share price has been hitting lower circuits of 5% everyday since its listing on the stock exchanges on Monday, August 21. Today again, Jio Financial Services shares were locked at 5% lower circuit at ₹213.45 apiece on the BSE with a market capitalization of ₹1.35 lakh crore.

On BSE, Jio Financial Services shares were locked at ₹215.90 apiece.

Jio Financial Services Ltd (JFSL), was demerged from Reliance Industries and it made a stock market debut on August 21 with the shares listing at ₹265 apiece on the BSE and ₹262 per share on the NSE as compared to its discovered price of ₹261.85 apiece. 

Also Read: Jio Financial Services Listing Highlights: JFSL shares close at 5% lower circuit at ₹251.75 apiece on listing day

However, JFSL shares have plunged for the fourth consecutive session Thursday on persistent selling from institutions who have to exit from the stock before it is removed from the indices. 

Deepak Shenoy, Founder and CEO of Capitalmind explained that index funds need to force sell JFSL shares worth roughly around ₹2,700 crore before the stock is removed from the indices.

JFSL shares were to be excluded from Nifty and Senex on August 23, but with the heavy beating and the stock hitting lower circuit limits consistently, the exclusion has been extended to August 28.

In a post on social media platform X, formerly Twitter, Shenoy noted that the total asset under management (AUM) index funds that track Nifty50 index is around ₹2,70,000 crore

“In the Nifty is Reliance Industries at a weightage of about 10%. It used to be 11%, but then JIOFIN was demerged out of it, and effectively, 1% of the NIFTY is in JIOFIN,” Shenoy wrote.

Meanwhile, the index funds which received JFSL shares upon demerger, will now be forced to sell JFSL shares before it gets removed from the index.

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“Why is JIOFIN falling? Because these index funds want to sell it - the minute it is out of the lower circuit, it's out of the index so they need to be out of it by then,” Shenoy explained terming the process as “forced selling”.

Considering that ₹270,000 crore is in Indian index funds (apart from active mutual funds that hold Reliance - those funds don't have to sell and can hold it for longer), 1% of that is ₹2,700 crore.

“That's the quantity that will be forced to sell, roughly. At ₹224 per share, that is roughly 12 crore shares that index funds must sell,” Shenoy said. 

At 2:15 pm, Jio Financial Services shares were still at 5% lower circuit at ₹213.45 apiece on the NSE with around 17.11 crore sell orders and not buyers.

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