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Monday, November 30, 2020

Explained: Here’s what led to the 8.6% fall in Reliance Industries (RIL) shares

Share price of Reliance Industries fell sharply by 8.6 per cent on Monday. What led to this? What is the way forward?

Written by Sandeep Singh , George Mathew | Mumbai, New Delhi | November 3, 2020 3:06:34 am
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Share price of Reliance Industries — India’s largest company by profitability and market capitalisation — fell sharply by 8.6 per cent on Monday bringing its total market cap down by Rs 1.23 lakh crore (taking into account both fully and partly paid shares), or $ 16.6 billion, from Rs 14.37 lakh crore on Friday to Rs 13.14 lakh crore on Monday.

For a stock that rose 170 per cent from lows of Rs 875 in March to hit a high of Rs 2,368 in September and stole all the limelight with record fund raising of over Rs 1.5 lakh crore from global investors into its telecom and retail arms over last six months, the sharp fall comes both as a dampener for some and opportunity for others.

What led to the sharp fall on Monday?

The sell-off was triggered by the weak second quarter results by the company with the net profit falling 15 per cent to Rs 9,567 crore in the September quarter due to a sharp decline in refining margins to $ 5.7 per barrel and weakness in the retail arm in the wake of the Covid pandemic and lockdown across the country. Had it not been the 187 per cent rise in Reliance Jio Infocomm net profit to Rs 2,844 crore, RIL profit would have sunk further. RIL’s revenue from operations declined 22.29 per cent to Rs 128,385 crore in September quarter. The sequential decline in refining margin was due to lower cracks across products.

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What is the way forward?

Is the sharp fall on Monday the end of the fairytale run of the scrip? Brokerage houses don’t feel so. Fund managers and analysts feel that since the stock was richly valued, the weak quarterly results gave a reason for many to book profits and that resulted into further decline of the share price as the day proceeded.

The research head of a leading brokerage firm said that the refining GRM are soft and expected to remain soft because of low aviation and overall demand for diesel which is around 40 per cent of the production. “Low demand for this diesel produce means soft realisation for this produce and it is likely to remain so for the third quarter too,” he said. He further added that in the telecom business too subscriber base addition has slowed and also since most of the deals are done, “there is no fresh trigger for the share price as of now and so that is leading to profit booking.”

There are some who feel that the telecom and retail story of the group is unfolding and one quarter of weak performance during Covid-19 pandemic is not a major concern for the medium to long term. “One should not read too much into the current fall and weak results in the oil business were expected given the weak demand globally,” said a fund manager with a mutual fund.

Does it throw open an opportunity to invest?

Experts say that when the share prices had hit over Rs 2,300 per share, many felt that they had missed the opportunity to buy shares of Reliance Industries and so for them the current fall provides the opportunity to enter the stock for long term gains.

While some global investment firms like Macquarie has talked about a 42 per cent further downside in RIL shares, there are some who feel that since there are no fresh trigger for share price rise as most of the investment deals have been announced, the share price may remain range bound and it could be a good time for investors to accumulate shares of RIL.

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