Reliance Jio Financial Services Demerger: Analyzing the Impact on Shareholders

Introduction

In the financial landscape, the demerger of companies plays a crucial role in reshaping the market dynamics. One such significant development is the Reliance Jio Financial Services (JFSL) demerger, which has garnered attention in the oil-to-telecom conglomerate industry. This article delves into the implications of the demerger and its effects on shareholders.

The Reliance Jio Financial Services Demerger

The Reliance Industries Ltd (RIL), led by the visionary Mukesh Ambani, executed the demerger of its financial unit, Jio Financial Services (JSFL), on 20 July. As part of a comprehensive group restructuring, the financial services arm has undergone a momentous transformation, emerging as an autonomous entity known henceforth as Jio Financial Services Limited (JFSL). This new entity is poised to enter the stock market soon, bringing new possibilities for investors.

Market Valuation and Potential

The share price discovery of RIL ex-JFSL culminated at an impressive Rs 2,580 per share, while the valuation of Jio Financial Services stood at a noteworthy Rs 261.85 per share during the pre-opening session on both the NSE and BSE. Remarkably, this valuation surpassed most brokerages’ estimates, indicating the market’s optimistic assessment of JFSL’s potential.

Dr VK Vijayakumar, the Chief Investment Strategist at Geojit Financial Services, acknowledged Jio Financials’ remarkable potential, attributing it to its extensive reach through RIL’s diverse business segments like Reliance Retail. This positioning allows JFSL to grow at an accelerated pace for years to come, a prospect that the market is actively discounting.

Check out: Live Reliance Industries Share Price

Impact on Shareholders

Under the Reliance-Jio Financial Services Limited (JFSL) demerger, shareholders of Reliance will receive one share of the demerged entity for each share they own in the oil-to-telecom conglomerate. The allocation of shares is based on the shareholding pattern at Reliance Industries, and the record date, 20 July, was fixed to identify eligible shareholders for the allotment.

For example, in the scenario where an investor possesses 100 RIL shares on 20 July, they shall become eligible to receive an equivalent 100 shares of Jio Financial Services. This ensures that shareholders’ stakes in the demerged entity remain in line with their holdings in Reliance Industries.

Calculating the Share Price After Demerger

The calculation of the initial share price of Jio Financial Services was carried out during the special pre-opening session. Traders assessed the market sentiment and evaluated the fair value of Reliance Industries’ stock post-demerger. The variance between Reliance’s pre-demerger closing price and the discovery price during the pre-open auction served as the basis for determining the initial share price of JFSL.

As of pre-opening session, Reliance’s stock price stood at Rs 2,580, presenting an alluring 9.2 per cent markdown from the preceding day’s closing price of Rs 2,841.85 per share on the National Stock Exchange (NSE). Consequently, the shares of Jio Financial Services were valued at Rs 261.85 after the pre-open auction session.

Listing Date and Future Inclusion in Indices

n the next 2-3 months, we can expect Jio Financial Services to grace the stock exchanges with its presence. Beyond making its mark as part of the benchmark Nifty 50, JFSL will also secure a spot in other noteworthy indices like Nifty 100, Nifty 200, and Nifty 500. This inclusion positions it as the 51st stock on the Nifty 50 index, marking a significant milestone in the company’s journey.

It’s important to note that the demerged entity will be removed from the index after the end of the third day of actual listing.

Calculating Capital Gains Tax on JFSL Shares

Reliance has provided clarity on the post-demerger cost of acquisition for both RIL and JFSL shares. The cost of acquisition for RIL shares is calculated at 95.32 per cent, while for JFSL shares, it stands at 4.68 per cent.

To illustrate, let’s consider an example: If an investor purchased Reliance shares on 19 July at Rs 2,840, the value of their Reliance holding would be Rs 2,707 and Rs 133 for JSFL holding. Therefore, the acquisition cost of Jio Financial Services for this investor would be Rs 133. The calculation of capital gains will be based on the difference between the selling price of the shares (excluding Rs 133, assuming the shares were bought at Rs 2,840) and their acquisition cost.

However, it’s essential to remember that the tax liability will only arise at the time of selling the shares. At present, investors are unable to sell JFS shares, as they will remain constant in value across all the indices where Reliance is present.

Conclusion

The Reliance-Jio Financial Services demerger marks a significant milestone in the financial realm, impacting shareholders and market dynamics alike. With the demerged entity being listed soon, investors eagerly anticipate the opportunities and growth potential that lie ahead.

Also Read: Reliance share price Hits 52-Week High as Investors Respond to Demerger Approval