Expert Analysis of the Global Macro Events & News affecting the Indian Markets
WEEKLY MARKET SYNOPSIS
| Index | 1 week | 1 month | 1 year | 5 years |
| Nifty 50 | – 0.50% | 2.13% | 13.77% | 73.70% |
| BSE Midcap | 1.79% | 5.16% | 23.69% | 87.26% |
| S&P 500 | 0.59% | 2.99% | 11.42% | 61.56% |
| Nasdaq | 1.98% | 3.61% | 21.76% | 103.06% |
Jio Financial Services to be the new Jio network?
Not very long back when the world just knew networks like Airtel, Idea or Vodafone, Jio emerged as a knight in shining armour when it entered the market with a complete package deal that India’s middle class so desperately needed- free unlimited calls, data and internet. It revolutionised the way India looks at the Internet today. And not to mention it also hit companies like Vodafone, BSNL and Idea where it hurts the most i.e., Price. These were already going through financial mayhem. Anyways, these things apart, in this week’s newsletter we are going to discuss Jio Financial Services Limited- another Reliance entity that is expected to derange the banking services industry especially the fintech space. So let’s discuss.
This saga started in mid July when Reliance Industries Limited announced that it is going to demerge its financial services segment and is going to rename it as Jio Financial Services Limited. This new entity will have investment in 6 companies- Reliance Industrial Investments and Holdings (RIIHL), Reliance Payment Solutions, Reliance Retail Finance, Jio Payments Bank, Jio Information Aggregator Services, and Reliance Retail Insurance Broking Ltd. The official statement said that this decision has been taken to attract a different set of investors, strategic partners, lenders and other stakeholders. Post demerger, aim is to lend to consumers and merchants based on proprietary data analytics and eventually branch out to insurance, payments, digital broking and asset management.
This might bore you a little but keep reading as in the later part, I’ll be discussing the return of World’s largest asset management company, which is none other than Blackrock.
The Valuation, The Premium and The Listing
Let us discuss these in pointers so that it is easier for you to be on the hook.
- Demerger ratio? 1:1. Meaning on the record date, every shareholder that owns 1 share of Reliance Industries Limited will get the same amount of shares, (in this case-1) of JFSL.
- Record Date? July 20.
- The listing date? October.
- Price? The price has been fixed at Rs. 261.85 per share which is premium as compared to price estimates of various brokerages (Rs. 175-190).
- Calculation? During the special pre-opening session, traders had the opportunity to watch the market sentiment and assess the fair value of Reliance Industries stock post-demerger.
- Findings? Reliance’s stock price was at Rs 2,580, when the pre-opening session ended, a 9.2% discount from Wednesday’s closing price of Rs 2,841.85 per share on the NSE. Shares of Jio Financial Services are now valued at Rs 261.85 after the pre-open auction session.
The Ultimate Behemoth
JFSL is going to be the fifth largest financier in terms of capital and compete with peers like Paytm and Bajaj finance. It has hired banking pioneers like KV Kamath, the ICICI personality and Hitesh Sethi, a top executive from McLaren Strategic Ventures as managing team. But the question here is what places JFSL above the crowd? They say that data is the new oil and this is the oil that is going to fuel this fire. JFSL would leverage the huge 400 million subscribers data of Jio telecom. Let’s have a look at an important question.
How is it going to leverage it?
The demerger is expected to provide significant benefits to shareholders, much like Adani’s previous strategy of separating its business segments into new entities and expanding within each one. However, JFSL has a competitive advantage in the form of its extensive JIO database, which can serve as a leverage point. This disruption is reminiscent of the impact JIO made when it entered the telecommunications market. Airtel Payments Banks played well in the markets because of the data access from Airtel Communications. It could be volume play, targeting small merchants and providing finance at minimal price.
Not only this, it is also going to leverage its credibility. See the chart below.
Drum Rolls!!!
Collaboration with BlackRock: Rock thrown over NBFCs
BlackRock, world’s largest asset management company is once again entering India in a joint venture, this time with Jio Financial Services. The company, hence formed, to be called Jio BlackRock will have an initial investment of $300 million in an equal ratio from JFSL and BlackRock.
There are two very interesting things here:
- This is BlackRock’s second attempt to enter the Indian Asset Management Industry. It first entered into a joint venture with DSP as DSP BlackRock Investments around two decades ago. But, back in 2018, BlackRock exited the joint venture. Now, the asset management co. is once again entering the growing market of India.
- Jio Financial Services might just revolutionize the investment space, particularly for small investors. Why? Jio BlackRock will be looking at consumer lending, B2B credit, insurance, payments, digital and more. Although there are plenty of big names that the new company will have to challenge, Jio BlackRock has the resources to do so.
What can Jio BlackRock do?
Well, it can sure disrupt the Indian Asset Management space. But how? With BlackRock’s robust technology and innovations, and Jio’s digital infrastructure and market knowledge. Jio BlackRock could be the company to acquaint tier-2 and tier-3 investors with asset management services.
Will JFSL be able to penetrate the Indian market like it did with JIO? Is the same strategy gonna work once again?
Well, JFSL even before getting listed has impacted the stocks of other NBFCs. Now we can only wait till the company starts its operations to see how things pan out.
Stock Specifics: Anup Engineering Limited
All of us investors are looking for stocks that can give us multifold returns. But, sadly unless you have some magic potion to foresee the future, we mostly get to hear about stocks after they have given returns. Having joined Green Portfolio only recently, yesterday was one of those days for me at work when I was looking at some stocks we had earlier invested in which gave exemplary returns. The stock in conversation here is one that gave us over hundred percent returns in merely two years. We are talking about Anup Engineering Limited today.
Let’s first understand the company and what it does. Anup Engineering Co. designs and manufactures process equipment. Some of these equipment, which are further used in heavy industries are heat exchangers, vessels, reactors, centrifuges and others. These equipment are used in manufacturing industries as processing units. Some that the company supplies its products include Oil & Gas, Petrochemicals, LNG, Fertilisers, Chemicals, Pharmaceuticals, Power, Water, Paper & Pulp, and Aerospace.
Now, this is a lot of products and industries, but going by the reported numbers, heat exchangers, vessels and reactors are the three most manufactured products supplied to oil, gas and petrochemicals primarily.
Here are some positive indicators for the company:
- Anup Engineering has a PE ratio of 34.2 currently against the industry average of 45.
- The company reported a revenue growth of 42.7% from FY22 to FY23.
- The reported PAT indicated negative growth, but this was mainly due to tax reversal.
- Having received orders amounting to 500 Cr last year, Anup Engineering started FY24 with an order book of about 530 crores.
Well, think about this, we have been talking about the increasing market sizes of industries like power, energy, petrochem, aerospace and more. In a situation when manufacturing industries are increasing, so would the demand for processing equipment. Anup Engineering, capitalising on opportunities, has seen this growth for the right reasons. With exports mostly going to the USA and the Middle East, the company has about 80% of its customers in India itself.
Having customers like Reliance Industries, Indian Oil Corporation, IFFCO, Nayara Energy Limited, and several others, Anup is a low-debt company giving on-time deliveries and thus enjoying a good reputation.
CURRENT ECONOMIC EVENTS
| EVENT | DATE | SIGNIFICANCE |
U.S. Crude Oil Inventories | August 2 | This information, released every week, is important because the demand and supply mechanics of oil directly affects numerous nations and industries. |
U.S. Unemployment Rate July | August 4 | Unemployment Rates are one of the key measures of a nation’s development and economy. With talks of recession hitting the US, employment has been under stress . |
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Green Portfolio is a SEBI Registered (SEBI Registration No. INH100008513) Research Analyst Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use.
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