Jio Financial Services Limited: The Lower Circuit story

Market lower circuits are devastating. People lose a lot of money and it’s very difficult to exit a position. Most people based on their sentiment fear start selling these lower circuit stocks. But, that is not always the right move. Before we move toward a solution let’s understand what a lower circuit is and how a stock enters a lower circuit. A lower circuit is a state in which stock keeps falling at a constant rate of 5% with each trading session. A lower circuit comes into effect when sell orders far exceed buy orders and in most cases, there are no buyers. The lower circuit and the upper circuit are quite common for highly unstable companies such as Suzlon. One positive news and market sentiments become highly positive and the stock enters the upper circuit. Coming back to context why did Jio Financial Services Limited enter the lower circuit?


JFSL opened up at 100% profit with initial pricing at around 131. But, soon after listing JFSL started falling and entered a lower circuit. And the lower circuit is maintained for the third day straight. Now the question is if Blackrock invested in this demerger then why is JFSL falling? The primary reason is investors who saw this demerger as an opportunity to book short-term instant profit. These types of market players are known as arbitrage players or gamblers. People who only look at the trends and gamble their money to book quick profits. And as the stock started falling the market sentiment for JFSL changed and retail investors got scared. All retail investors also started selling and closing their position. It is only the fundamental investors who chose to stay in fact buy in the lower circuit.

Now you might call that madness. But, value investors see this as an opportunity. They believe JFSL is going to be a great financial market player. And will soon start displaying profits on its balance sheet. The belief is not just in the management of Reliance Group but also in the business skills of Ambanis and a big market for financial players. And not only that investment from BlackRock attracted a lot of interest in JFSL. See, BalckRock is a management firm that doesn’t invest in anything without reason. The joint venture of BlackRock and JFSL will surely benefit JFSL investors.

What should you do?

If you own JFSL shares what should you do? It is the third day of the lower circuit for JFSL and the sell orders stand at 57 lac+. If you wish to exit the deal place a limit order and you will be queued just like those 57 lac orders. However, if you are a long-term investor I would not recommend selling JFSL. I would recommend buying on the dip. The selling might continue for a few more days. Once the stock comes out of the lower circuit I assume there will be a bull run on this stock. Many anticipated this fall and are waiting for the right time to push their cash into this stock. But, of course, this comes with a short-term risk factor. If you are not comfortable seeing your portfolio in red you should just exit the trade.

Disclaimer: Everything that I say in these blog posts regarding the market is based on my own experience and knowledge. I am not a certified SEBI investment advisor. I have made quite handsome profits based on my knowledge and feel obliged to help others by sharing free advice.

manorinfinity Written by:

Complex Problem Solver, Outloud Thinker, An Outstanding Writer, and a very curious human being

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