Jio Financial Services shares are soaring; valuation concerns remain

Jio Financial Services (JIOFIN) share price has staged a strong comeback this week, helped by the rising hopes that it will be included in the F&O segment of the Indian market. The stock rose to ₹350 on Monday, its highest point since July 15 and 13% above its lowest point in August.

Jio has done well after going public in August 2023. It has risen by over 72% from its lowest point in 2023, pushing its market cap to over ₹2.24 trillion or over $26.83 billion. This makes it one of the biggest fintech companies globally. It is twice the size of Affirm and bigger than Robinhood.

Jio Financial hopes to be India’s biggest fintech

India has become the fastest growing country in the emerging markets and the fifth-biggest economy in the world. Analysts expect that the country’s GDP will grow by over 7.2% this year as China struggles to hit its 5% target.

India, a country with over 1.45 billion people, has become ripe for disruption in the financial services industry. In addition to banks, the country has had many fintech companies that are helping people simplify their financial life.

Jio Financial Services is one of the biggest ones. It provides a number of solutions that are used by millions of people in India. For example, it provides home loans and Loan on Mutual Funds (LoMF) at highly competitive interest rates.

Jio has also launched vendor financing and home loans. The next big launch will be loans against property and securities.

It has also became one of the fastest-growing insurance brokers in the country. Its banking solutions lets people pay bills and send money. Additionally, the firm provides a payment solution that lets businesses accept payments like Buy Now, Pay Later (BNPL) and cards.

By offering these products, Jio Financial Services hopes to reach millions of people in India each day. Its goal has been to become the best financial companion for its customers.

Starting and operating such a succesful payment platform is not easy. In Jio’s case, it benefited from its founder, Mukesh Ambani, being the richest person in the country. As part of the Jio ecosystem, it is also backed by companies like Google, Meta Platforms, and Silver Lake.

Most importantly, Jio has launched a partnership with Blackrock, the biggest asset manager in the world. The deal will see the two companies create a joint ventures for asset management, and wealth management.

Jio Financial earnings

The most recent financial results showed that Jio Financial Services is growing, albeit at a slower pace. Its interest income retreated from over ₹2.02 billion or $24 million to ₹1.62 billion. Its total income rose rose from ₹4.14 billion to over ₹4.18 billion.

Most of this income came from the net gain on fair value changes, which rose to ₹2.08 billion. Jio’s profit after tax was ₹3.13 billion. For the last financial year, the company’s total income jumped to ₹18.5 billion.

Analysts believe that Jio Financial Services has more room to grow in the future as the management continues launching new products across its verticals.

Jio is not a cheap stock

A key issue with Jio, like many other Indian companies, is not a cheap firm. The company made over ₹18.54 billion or $224 million in the last financial year. Its profit after tax was over ₹16 billion or $193.37 million.

These are huge sums for a company that has a market cap of over $26 billion. The company has a price-to-sales ratio of 131, which is quite stretched considering that its revenue growth, for now, is not all that spectacular.

A good example of this is Nvidia, a company that is more than doubling its quarterly sales and is in a high-growth industry. Nvidia, despite its $3 trillion market cap, trades at a price-to-earnings multiple of less than 50. This valuation is in line with other top companies in India like PayTM and Angel One.

Turning to the daily chart, we see that the Jio Financial Services stock price peaked at ₹395 earlier this year. At its highest point, the stock was up by more than 96% from its lowest point last year.

The stock then bottomed at ₹307.40 in June and has been bouncing back since then after forming a double-bottom pattern.

Jio is approaching the 23.6% Fibonacci Retracement point and has crossed the 50-day moving average. Also, the Relative Strength Index (RSI), which measures the rate of change, has pointed upwards. It has also risen above the descending trendline that connects the highest swings since April.

Therefore, the stock will likely continue rising as buyers target the next key resistance point at ₹360. The alternative scenario is where it retests the falling trendline and then resumes the uptrend.