Commodity Calls

Why RIL stock is on roller-coaster ride

Anand Kalyanaraman | Updated on March 27, 2020

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

The troubles for the stock worsened earlier this month when the OPEC+ oil output deal unraveled and the Saudis launched an all-out price war to gain market share. The RIL stock lost about 12 per cent on March 9, 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 proposed 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 on coronavirus and lock-down. The RIL stock lost 13 per cent on March 23 and went down to ₹884.

But then, the tide reversed. The stock gained over 20 per cent intra-day on March 25, 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 the RIL’s telecom business RJio. The possibility of value-estimation of and value-unlocking in a key business segment seems to have buoyed sentiment for the RIL stock; the company though has not commented on this news.

Interestingly, on March 25, there was a bulk deal of 11.6 crore shares of RIL at a price of ₹949.50 between two RIL group entities – Devarshi Commercials (the seller) and Samarjit Enterprises (the buyer). As of December 2019, Devarshi Commercials held about 71 crore shares (11.48 per cent) in RIL, while Samarjit Enterprises held 200 shares in RIL. At ₹1,075 now, the RIL stock is still about down about 33 per cent from its December 2019 high. The consolidated price-to-earnings ratio of the stock is about 14 times, compared with its three-year average of about 17 times.

Published on March 27, 2020

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