Stock Fundamentals

Why is Reliance Industries stock on a roller-coaster ride?

Anand Kalyanaraman | Updated on March 29, 2020

Market behemoth Reliance Industries (RIL) has been on a roller-coaster ride the past couple of weeks. The stock has been on a downslide since mid-December 2019 when it touched its peak of ₹1,610 — this was due to market weakness and worries about the impact of the coronavirus spread on the company’s business.

The troubles worsened earlier this month when the OPEC+ oil output cut deal unravelled and the Saudis launched a price war to gain market share. The RIL stock lost 12 per cent on March 9 to close at ₹ 1,114. This was driven by concerns whether Saudi Aramco, with its financials set to be weakened due to the oil price crash, would go ahead with its plan to buy 20 per cent in the refining and petrochemical business of Reliance Industries. A back-off or delay by Saudi Aramco will be a setback for RIL’s mega balance-sheet deleveraging plans.

The slide continued due to widespread market panic about the impact of coronavirus and the lockdowns; the RIL stock lost 13 per cent last Monday and went down to ₹ 884.

But then, the tide reversed. The stock gained over 20 per cent intra-day last Wednesday, a record one-day rise, and ended the day with gains of about 15 per cent, to close at ₹ 1,081. This rally was driven by news that Facebook would pick up 10 per cent stake in RIL’s telecom business RJio. The possibility of value-estimation of and value-unlocking in a key business segment buoyed sentiment for the RIL stock; the company though has not commented on the news.

Interestingly, on March 25, there was a bulk deal (about ₹11,000 crore) of 11.6 crore shares of RIL at a price of ₹949.50 between two RIL promoter entities — Devarshi Commercials ( seller) and Samarjit Enterprises ( buyer). Again, on March 27, there were transactions worth ₹9,145 crore between promoters at an average price of ₹1,056.61 — Ambani family members and Tattvam Enterprises being the buyers, and Devarshi Commercials being the seller.

At ₹1,065 now, the RIL stock is still down about 34 per cent from its December 2019 high. The consolidated price-to-earnings ratio is about 14 times, compared with its three-year average of about 17 times.

 

Published on March 29, 2020

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