Reliance Industries’ spun-off entity is all set to enter the National Stock Exchange’s (NSE) gauge Nifty. As per the index methodology, this entity would be included in indices effective from July 20 (Close of July 19).
Recently, Axis Securities recommended that investors can buy the shares of Reliance Industries before the record date, i.e., July 20 as it believes that this will be a more economical way to buy the shares of Jio Financial Services, which is likely to get listed at ₹ 160 per share, as per treasury stock valuation.
Meanwhile, Nuvama Institutional Equities suggested that when Reliance Industries demerged four of its entities in 2005, the market rewarded the stock. The company’s shareholder wealth swelled 38 percent after the split.
“Should the market have a déjà vu moment this time too, shareholders’ wealth could potentially increase by 3–5 per cent. The demerger of financial services is a spin-off of RIL’s 6.1 per cent treasury shares,” Nuvama Institutional Equities said.
It noted that Reliance’s board had permitted the split on June 19, 2005. At that point Reliance Industries and Reliance Capital were already listed, while the remaining companies were listed in February and March 2006, with the creation of three new subsidiaries Reliance Natural Resources Ventures, Reliance Energy Ventures and Reliance Communications.
Nuvama noted that each of these subsidiaries issued shares to its shareholders in the ratio of 1:1. Reliance Industries’ share price did not fall post-split, indicating a gain of 38 percent. Moreover, investors received the shares of the additional entities, effectively for free.
Jio Financial Services, which is now included in non-operating assets in its SoTP valuation, is estimated to be worth 168 rupees per share. Nuvama ascribed a value of ₹ 323 per share to its non-operating assets, while it values its treasury shares at ₹ 168, based on Reliance Industries’ closing price on July 14, 2023. It added that Reliance Industries shares could be least impacted by the demerger. Instead, it sees an upside of 3 to 5 percent.
Jio Financial Services will be a part of 19 indices of the Nifty, including Nifty 50, Nifty 100, Nifty 200 and Nifty 500, according to a statement by NSE indices on Monday. It will be removed from these indices at the end of T+3 days, where T is the day on which Jio Financial services will get listed. This will happen in accordance with the new methodology of Nifty indices which expects to reduce the churn in index constituents due to corporate actions like demergers.
Also Read: Jio Mart Launches Online Grocery Delivery Service in India
Under this methodology, a demerged company will be retained in the Nifty index if a Special pre-open session is conducted by the exchange. Moreover, spun-off entities will be included at a constant price. Three days later, it will be removed from the indices.
Earlier, when the new methodology was not in practice, a demerged entity would be excluded from indices and the same was replaced by another eligible stock. This would happen soon after the equity shareholders approve of the scheme of arrangement for the demerger of a company.
Written by Simran Bafna
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result
