Jio Financial Services demerger: Here's what it means for mutual fund industry

Jio Financial Services (JFSL) has been demerged from Reliance industries and the discovered price has come in at Rs 261.8 per share of the demerged business. So, it makes senses to see how does this impact fund flows, especially index funds?

Nuvama alternative research says active and passive fund managers would ideally maintain JFSL price at Rs 261.8 per share until it starts trading. This price is calculated after special price discovery session that was held for Reliance Industries on July 20.

There is no concrete listing day yet and it may take few weeks’ time to get all the listing approvals. But Nuvama expects that JFSL may be listed in a month’s time (or even earlier). Nuvama assumes on the day of listing (T-day), the action begins as Nifty 50 Index passive trackers will sell approximately 90 million shares, with a value of around $290 million.

Simultaneously, Sensex Index trackers are expected to sell 55 million shares, amounting to approximately $175 million. At the current free float they are assuming weightages of less than 1 percent in Nifty 50 and around 1 percent in Sensex.

They will not have to do any buying or selling in JFSL on Thursday i.e. today. The end of the day index weightages file will automatically get adjusted to the free float market-cap of existing constituents plus JIO Financials.

There will be actual buying or selling amongst other member constituents once Jio Financials starts trading and get excluded on trading plus third day.

As JFS gets excluded from the indices, there will be some reshuffling in the weightings of other member constituents. Specifically, Reliance Industries' weight in the Nifty 50 Index is projected to move to around 10.1 percent from the previous 11 percent, while in the Sensex, it will shift to approximately 11.8 percent from 12.8 percent on July 19. This reallocation could result in actual buying or selling activities among the other index constituents.