Reliance-Jio Financial Services Demerger: Will Mukesh Ambani's Reliance Industries Recreate 2005 Performance On The Stock Market?

Reliance’s newly demerged entity, Jio Financial Services (JFS), discovered its price on the stock market on Thursday after special sessions on BSE and NSE. The financial services arm of Reliance Industries Limited (RIL) has been carved out of the company. 

The move has been closely watched since being announced last year. Recently, when the firm stated that the record date for allocating the shares for JFS would be July 20, there was a huge rally in its shares to get eligible for the allotment of spun-off entity’s share. In the past two weeks, the stocks of RIL surged by around 8 per cent before slowing down on July 20. 

The demerger of the business has reminded some of the June 2005 move when four entities were demerged by RIL. These were Reliance Capital Ventures, Reliance Energy Ventures, Global Fuel Management Services and Reliance Communication Ventures. Just like the recent demerger, the shareholders of RIL received shares in all four companies. 

By the end of 2005, the shares of Reliance Industries had seen a substantial increase in its value, leading to good returns for the shareholders. The RIL scrip surged by around 40 per cent in this period. The performance following the demerger in 2005 has raised the question of whether Mukesh Ambani’s RIL can recreate this performance. 

Optimistic On Reliance

The buoyant buying momentum in Reliance stocks in the last two weeks has been seen as an evidence of investors’ interest in the newly spun-off entity whose entire plan is yet to be made clear by the group. It is expected that the roadmap for the new firm will be made clear following the annual general meeting of Reliance group. 

Also Read | What Will Be The Impact On Shareholders?

Talking about the impact on RIL’s shares, Nuvama Institutions Equities had said in a note that if the markets have a déjà vu moment, it could have a positive impact on shareholders. The research firm predicts an 3-5 per cent upside for RIL stocks in future.  

Narendra Solanki, Head of Equity Research at Anand Rathi Shares & Stock Brokers, says, “These moves to list individual businesses into seperate entities unlocks value for shareholder and we have seen this happen not only in RIL but other companies as well where it has happened. It also helps businesses focus on core operations which is positive for long term growth.”

The new entity will have a market capitalisation of around Rs 1.7 lakh crore, making the firm the 32nd most valued company. Its value on the share market has also been set higher than what many brokerage firms predicted. How the price evolves following its listing remains to be seen but for now the analysts are optimistic on Reliance and JFS. Solanki says that RIL will continue to grab attention of investors with the focus of the firm on demerging its businesses. 

All eyes are now set on the Q1 results of the group which will be released on Friday. While the trading in RIL shares is expected to be back to normal after the surge in last few weeks, it remains to be seen if the shareholders will again have the 2005 moment on the stock market.