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On July 20th, a significant development is set to take place in the Indian stock market as Reliance Industries Ltd’s demerged entity, Jio Financial Services, will temporarily become a part of the prestigious NSE Nifty 50 and BSE Sensex indices. This move marks a notable milestone for Jio Financial Services and highlights its growing influence in the financial sector.
To facilitate this transition, the National Stock Exchange (NSE) will conduct a special pre-open auction session for the shares of Reliance Industries Ltd (RIL) after the demerger of its financial services arm. The purpose of this session is to determine the stock price of RIL without considering the demerged unit, Jio Financial Services. This approach ensures a fair and accurate valuation of RIL’s stock.
In addition to its inclusion in the Nifty 50 and Sensex, Jio Financial Services will also join several other NSE indices, including Nifty 100, Nifty 200, Nifty 500, Nifty Energy, and Nifty Oil & Gas. These inclusions across multiple indices reflect the widespread recognition of Jio Financial Services’ significance in the market.
This temporary inclusion provides investors and market participants with an opportunity to track and evaluate the performance of Jio Financial Services alongside other prominent companies listed on the indices. It also signifies the confidence and potential investors see in the financial arm of Reliance Industries Ltd.
Reliance Industries pre-call auction
In light of the demerger of Reliance Industries, a pre-open call auction will be held on July 20th to facilitate price discovery for the company’s shares. This pre-open call auction is a vital step in determining the stock’s opening price and ensuring a fair and transparent trading process.
The auction will take place from 9 am to 10 am, during which market participants will have the opportunity to place their orders at specified prices. This session allows buyers and sellers to submit their orders and establish the demand and supply dynamics for Reliance Industries’ shares.
Once the pre-open call auction concludes, any unmatched orders within the dynamic price band of the discovered price will be moved to the normal trading session. The dynamic price band ensures that the price remains within a reasonable range, preventing excessive volatility and protecting the interests of investors.
By conducting a pre-open call auction, market participants have a chance to assess the market sentiment and determine an appropriate price level before the regular trading session begins. This mechanism helps in achieving a more accurate opening price and facilitates smoother trading throughout the day.
Overall, the pre-open call auction for Reliance Industries is an essential process in the stock market, as it enables fair price discovery and enhances market efficiency. It provides a structured platform for buyers and sellers to participate, leading to a transparent and well-functioning trading environment.
What this means
During the pre-open session, traders will have the opportunity to determine the market’s price for Reliance Industries after the separation of Jio Financial Services (JFS) from the parent company. The difference between the pre-demerger price of Reliance Industries (RIL) and the discovery price in the pre-open session will serve as the valuation for JFS shares. For instance, if RIL’s share price settles at Rs 2,000 per share on July 19th, and during the pre-open auction session the next day it ends at Rs 1,800, then JFS shares will be valued at Rs 200 per share.
Before the official listing, a dummy ticker will be created for JFS, which will be added to the indices. JFS will remain on the indices until it gets listed. After the company’s official listing, JFS will be included in these indices and traded for three days. During this period, the market will determine the price of JFS. This temporary inclusion allows traders to trade the stock they have been allotted in a 1:1 ratio following the split, enabling them to rebalance their portfolios accordingly.
About Reliance Industries Limited Demerger
Reliance Industries has decided to demerge its financial services unit, Reliance Strategic Investments, and has set July 20th as the record date to identify the equity shareholders eligible to receive shares of the newly formed entity, Reliance Strategic Investments (RSIL). As per the arrangement, for each share of Reliance Industries held as of the record date, shareholders will be allotted one fully paid-up equity share of RSIL with a face value of Rs 10.
Following the demerger, Reliance Strategic Investments will be rebranded as Jio Financial Services (JFSL). During the valuation process, Nuvama assessed the shares of JFS at Rs 168 per share. However, they applied a 30% Holdco discount, resulting in a value of Rs 117 per share for the JFS shares.
This strategic move by Reliance Industries allows for the separate operation and focused growth of its financial services arm under the new entity, Jio Financial Services. The demerger aims to enhance the strategic positioning and value creation potential of both Reliance Industries and Jio Financial Services, ensuring optimized operations in their respective domains.
