JFS: Ambani’s shadow bank has sunny prospects

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India’s richest man has pulled his shadow bank into broad sunlight. The listing of Jio Financial Services on Monday gives the company, spun off from Mukesh Ambani’s Reliance Industries, a $19bn market value.

There are bumps in the road ahead. But the prospects for this business are broadly good within India’s expanding financial services industry.

The debut makes JFS India’s third-largest non-banking financial company. It has the strong brand of Reliance Industries, India’s biggest company by market value, behind it. During last month’s spin-off of JFS from Reliance, shareholders received one JFS share for every Reliance share.

The stock of JFS fell 5 per cent — limit down — on Monday morning from a benchmark price of Rs262 ($3.15) set in a “discovery session” last month. The equity is hard to value in the absence of reliable earnings data. JFS is still very much a work in progress. Analysts polled by Reuters estimated a price range of Rs160-Rs190 per share.

Nervousness is increased by memories of the Adani group crisis that wiped out $110bn in market value earlier this year. A short seller attack on the highly leveraged group raised fundamental questions for foreign investors about the reliability of Indian financial data.

Concerns also surround India’s shadow banking sector. One of JFS’s larger peers defaulted in 2018. The ensuing liquidity crisis is still fresh in investors’ minds.

The spin-off from much larger Reliance Industries means JFS will not be large enough for several benchmark FTSE and local blue-chip indices. That should result in selling by passive funds.

Indian financial services has medium-term promise. The sector is growing fast. About 10,000 shadow banks account for about a quarter of the country’s banking sector. Demand for consumer loans is growing and local banks lack capacity.

Reliance is a household name and that gives JFS an edge. It has a joint venture, Jio BlackRock, with US financial group BlackRock that plans to launch asset management services in India.

Stronger balance sheets and demand for consumer lending have been pushing the largest shadow banks into steadier businesses such as home appliance loans.

India is expected to be the world’s fastest-growing big economy this year. This growth, coupled with stricter regulation of shadow banks, means JFS stock could one day be a handy proxy for India itself.