Jio Financial Services down 5% for fourth day: When will passive fund selling end?

Since JFS hit circuit on first two days, the stock’s exclusion from Nifty and Sensex was postponed. Instead of August 24, it is now set to be removed effective August 29

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Jio Financial Services share price hit 5 percent lower circuit for the fourth session on August 24. It has been on a decline since its listing as passive funds are selling shares, pre-empting its exit from the Nifty and Sensex.

What is passive fund selling, when will it get over? We break it down for you:

What are passive funds?

These are funds, which replicate a market index like the Nifty or Sensex and are not actively managed. In this case, several index funds replicating the Nifty 50 and Sensex 30 hold Jio Financial Services.

Why do they have JFS shares?

Since these funds hold Reliance Industries, which is a part of the index, they automatically got shares of Jio Financial Services as part of the demerger.

In March 2023, NSE Indices said in a circular that when an index stock undergoes a demerger, the demerged entity will also become a part of the index till it is listed separately.

So, why are they selling?

After a separate listing of the demerged entity, it will continue to be in the index for three days after which it will be removed. However, if it hits the circuit for the first two days, the exclusion date will be postponed.

Pre-empting the eventual exclusion, index funds have been selling the shares in order to minimise tracking error when the stock is finally excluded from the indices.

Also Read: A question of values: How Jio Financial Services stacks up against rivals

How many shares do they have to sell?

The combined outflow will approximately be 145-150 million shares for both Nifty and Sensex fund trackers, said a note by Nuvama Alternative & Quantitative Research.

How much has been sold already?

Delivery volume on August 21: 78.3 million
Delivery volume on August 22: 7.8 million
Delivery volume on August 23: 4.7 million

In the first three days, about 90.8 million shares were sold. Assuming all these shares have been sold by passive funds, there are about 54-59 million shares left.

When will JFS finally be excluded from Nifty and Sensex?

Since JFS hit the circuit on the first two days, the stock’s exclusion was postponed. Instead of August 24, it is now set to be removed effective August 29.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.