Why is a Reliance stock getting beaten badly?

The shares of Jio Financial Services got listed on the Indian stock exchanges on Monday, 21st August 2023, just last week. And the stock went straight down. It dropped 5% every day (the maximum possible due to barriers applied on it called a lower circuit) until it formed a little bit of a base on Friday last week.

But how can a stock associated with Mr Mukesh Ambani, India’s richest and the world’s 13th richest man? Is it that the company does not hold that much inherent value? Or was it overpriced to begin with?

Well, while these might be topics people can debate, the reason for the fall of the JFS stock was more of a practical problem rather than a major fundamental problem.

JFS was demerged from Reliance Industries and then got listed on the 21st. And Reliance Industries, being the biggest company in India, is a part of the key indices of India’s stock markets, like Sensex 30 and Nifty 50.

Experts are saying that the selling of JFS stock is happening because upon listing it was included in the indices Reliance was a part of, and it then had to be removed from many of these indices due to JFS not meeting their criterion. Moreover, many institutions would have been trying to restructure their portfolios and hence may have wanted to sell the financial company’s stock. Both of these combined meant thousands of crores of selling in the stock.

It was first decided that the JFS stock would be removed from the relevant indices in 3-4 days after listing for index funds and others to get time to move out. But the lower circuits in the first few days meant that that deadline had to be extended.

I never knew stocks could fall massively due to no fault of anyone inside the company. Stock markets, well, you learn something different every time you pay attention. Also, if you enjoyed this article, you can read more from me here. And do let me know if you want a specific topic covered. Subscribe for free to receive more posts like this every day!