RIL seems to be in a tight spotlight because of Q4 Result + Demerger + Index (NSE) could be tweaking criteria... all happening at once in April-May 2023.
Reliance Industries (NS:RELI) Limited (RIL), the top company in India, had laid the foundation of demerging its financial services arm way back in October 2022 as the proposed plan of arrangement between Reliance Industries Limited and Reliance Strategic Investments Limited (RSIL) will be discussed and approved at a meeting of Reliance Industries' creditors and shareholders on 2nd May 2023. The name of Reliance Strategic Investments Limited will become Jio Financial Services Limited following the demerger.
In October 2022, RIL announced the demerger of its financial services arm into an independent entity and subsequent listing it on the stock exchanges. The demerger will be done through a share-swap arrangement. Shareholders of RIL will get one share of Jio Financial Services for every share held by them.
To be noted RIL also stated that the creation of an independent company focusing exclusively on financial services can: attract different sets of investors, strategic partners, lenders, and other stakeholders having a specific interest in the financial services business; a financial services company can have higher leverage (as compared to the demerged company) for its growth; and unlocking the value of the demerged undertaking for the shareholders of the demerged company
Source: Business Standard & Economic Times
So what is so bad about this Demerger and why is everyone talking of RIL's exit from Nifty that could initiate a large sell-off?
It is important to remember that RIL has a market cap of ~15.9 trillion & has the highest weightage of 9.9% in the Nifty 50. The index is tracked by many exchange-traded funds and index funds with assets of over ~2 trillion INR, and RIL’s removal from the index may lead to selling to the tune of ~20,000 crores by passive funds, which track the widely popular Nifty50 index because ..... because of NSE rule which states that a Nifty constituent shall be excluded from the Index in event of its demerger.
Many analysts tracking the index changes say, that the rule on the removal of large stocks from an index due to a scheme of demerger or amalgamation leads to unnecessary churn and needs a rethink. And it is not just analyst who thinks so, infect NSE is reportedly considering revising the eligibility criteria for inclusion of stock in the Nifty index, as RIL plans to demerge its financial services arm.
This move comes as a response to concerns raised by market participants about the potential impact of the demerger on the composition of the Nifty index.
The revision of the eligibility criteria for inclusion in the Nifty index is expected to be done in consultation with market participants, including asset managers, brokers, and other stakeholders.
The goal is to ensure that the Nifty index continues to accurately represent the performance of the Indian stock market, even after the demerger of RIL's financial services arm.
Is this the first time NSE tweaking the criteria in its methodology
Well, surprisingly this is not the first time NSE is considering changes before any big corporate action in the market. Time to remember the case of the HDFC and HDFC bank merger whereby, after receiving feedback from market participants, NSE announced changes in its methodology of Nifty equity indices for mergers reference 18th Nov 2022.
Awaiting outcome (soon):
Will NSE do the same for RIL to prevent the market from going haywire? Or will RIL have to face a huge sell-off?
The answer lies between the dates of the RIL result I.e 21st April 2023 and its demerger meeting on 2nd May 2023, as a lot depends on what happens between this period.
J2K Conclusion :
What's next for RIL?
Reliance Jio is all set and ready to compete with every large business in India
Mr. Ambani's Reliance Jio has been making bold moves across India's top industries by acquiring one industry at a time and retaining the customer on their side.
Let us try to understand the RIL business model in somewhat detail
As it all started way back with Jio 4G which disrupted the Indian telecommunication industry and bankrupted many players because the customers loved the free calls and data which helped to retain customer satisfaction.
The latest Jio TV which has been slowly but steadily taking over Indian OTT for example free IPL, almost taking Hotstar out of business, because the customers loved free IPL with any sim card tagline.
This is not the end, but it's just the beginning, and all happening now... how they're taking on the biggest players targeting the largest market share:
(data is based on a rough estimate and certain prefix assumptions of one on one comparison ):
Finance - Jio Financial Services vs Bajaj Finance (NS:BJFN) Market Size: $350B | Growth: 22% | Leader: Bajaj Finance (30%)
Soft Drink - Campa Cola vs Coca-Cola (NYSE:KO) Market Size: $8B | Growth: 9% | Leader: Coca-Cola (40%)
Cosmetics - Tira vs Nykaa (NS:FSNE) Market Size: $20B | Growth: 15% | Leader: Nykaa (25%)
Clothing - Ajio vs Myntra Market Size: $70B | Growth: 12% | Leader: Myntra (35%)
Streaming - JioCinema vs Hotstar Market Size: $1.6B | Growth: 29% | Leader: Hotstar (30%)
E-Pharmacy - Netmeds vs PharmEasy Market Size: $18B | Growth: 21% | Leader: PharmEasy (25%)
Music Streaming - JioSaavn vs Spotify Market Size: $500M | Growth: 28% | Leader: Spotify (30%)
Jewellery - Reliance Jewels vs Tanishq Market Size: $60B | Growth: 11% | Leader: Tanishq (10%)
Private Labels - Reliance Retail Consumer Brands vs HUL Market Size: $70B | Growth: 14% | Leader: HUL (30%)
Retail - Reliance Retail vs Dmart (NS:AVEU) Market Size: $1T | Growth: 10% | Leader: Dmart (15%)
B2B Marketplace - JDMart vs IndiaMART Market Size: $10B | Growth: 19% | Leader: IndiaMART (40%)
Electronic Stores - Reliance Digital vs Croma Market Size: $15B | Growth: 16% | Leader: Croma (20%)
Fuel and Petroleum - Jio-BP vs IndianOil, BPCL Market Size: $120B | Growth: 5% | Leader: IndianOil (35%)
Online Groceries - Jio Mart vs BigBasket Market Size: $3.5B | Growth: 25% | Leader: BigBasket (35%)
Media - Network18 vs Zee, Sony Market Size: $12B | Growth: 10% | Leader: Zee (25%)
Mr. Ambani is becoming stronger and smarter day by day and should be awarded the title of Dr. Mukesh Ambani (on a lighter note nothing serious) because just imagine a fantasy ride a few years from now (for example in 2030)
- You'll wake up on a comfy bed bought from Reliance Retail
- Slip into Jio slippers ordered from Ajio
- Make breakfast with Jio Mart groceries + appliances
- Listen to morning bhajans on JioSaavn
- While eating breakfast/power lunch, catch the latest news on Network18
- As you head out to work, fuel up your car or EV charge/replace the battery at a Jio-BP station
- Work in a company acquired by Reliance JIO
- By evening, you're watching IPL or your favorite movie on JioTV
- Drinking Campa Cola with snacks
- After dinner, take medicines (if any) from Netmeds...So that actually when you sleep, dream of becoming like Dr. Ambani one day!
(please note: Fantasy is not reality it's pure imagination)
Stay tuned for more updates (short/long term support and targets) post the Q4 + year-end result on 21st April 2023 and then the demerger meeting on 2nd May 2023.
Disclaimer: The above article is for self-educational purposes. The research was conducted by the following students: G10, Yogeeta, DJ, VJ, and RK for learning purposes. (Special thanks to Shambhavi Garg and her insightful posts)
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