114367In view of reduced inflation and expenses, will it be right to invest in IT stocks?

Shahrukh from Ahmedabad, who has been holding Reliance Industries Limited (RIL) stock for a long time, looked at his portfolio on Thursday and was surprised.  He saw a drop of 7.7 percent in RIL in his portfolio but on the NSE, the stock had closed with a gain of about 1.75 percent. He knows that the demerger of Jio Financial Services Ltd (JFSL) has taken place, due to which adjustments have been seen in the stock. But he is not able to understand whether he should be happy seeing the 1.75 percent gain in NSE or saddened by the 7.7 percent decline in his portfolio? In the sense, is this a profit or loss due to demerger of RIL?

Let’s sort this out for Shahrukh.

RIL had fixed July 20 as the record date for the demerger of JFSL. That is, whoever has RIL shares on July 20, will be eligible to get JFSL shares. Shareholders would receive one share of JFSL for every one share of RIL.
Due to this demerger, on July 20, a special pre-open session was also held for the shares of RIL for price discovery after its separation from JFSL
After this special pre-open session between 9-10 am The price of one share of RIL on NSE came out to Rs 2,580, which was Rs 261.85  below the closing of Rs 2841.85 on 19 July. But the stock closed the Rs.2623. Now let’s understand these figures carefully. So that it can be estimated whether the demerger has resulted in profit or loss?

The closing of RIL shares on July 19 was ₹ 2,841.85 while the July 20 opening or special pre-open session closed at ₹ 2,580. Accordingly, the difference between the two comes to ₹261.85. Now this Rs 261.85 is the value of one share of JFSL which has been derived or discovered through this special pre-open session. That’s why we were repeatedly mentioning about price discovery of RIL.

RIL shares closed at Rs 2,623 on July 20 which is at a discount of 7.7 per cent from the July 19 closing of Rs 2,841.85 paise. This is the same discount or loss that Shahrukh is seeing in his portfolio. But on NSE, RIL’s stock has closed with a strength of 1.75%. So, has Shahrukh made a loss of 7.7% or a gain of 1.75% . The answer is that Shahrukh has gained 1.5 to 2%. Arun Mantri, the founder of Mantri FinMart, helped us to understand this. According to Arun Mantri, RIL shareholders are only in profit of Rs 43 if compared to July 19. According to the new rules of NSE, JFSL, the new company formed after the demerger, has also joined Nifty-50.

Now you might ask, has Nifty50 become Nifty51?
Technically, yes. There are actually 51 shares in Nifty, but you will not see JFSL shares until it is listed. This is the reason that despite the fall of 8 per cent in RIL’s share, Nifty has closed with a strength of about 150 points today. That is, despite such a huge decline in the stock holding a weightage of about 10 per cent in the index, the index has closed with a big jump.

Arun Mantri says that the way JFSL’s share has entered Nifty, similarly this share has also been included in the portfolio of all those MFs, who hold RIL.  That’s why there will be no impact on NAV of MFs holding RIL. Just like how JFSL’s share will start appearing in Nifty after listing, similarly this share will also be included in MFs’ portfolio. Shahrukh will have to wait to be sure if RIL’s demerger has benefited him or caused a loss.