Reliance Shares: Yearly Gains of Over 11% Despite 0.5% YTD Decline

Reliance Share Price Faces a Setback: A Detailed Overview of Recent Performance and Future Prospects

Reliance Industries, one of India's largest and most diversified conglomerates, has recently witnessed a significant drop in its share price. On Monday, the stock plunged nearly 4%, reaching a nine-month low, driven by heavy selling pressure. The decline has affected Reliance's stock performance significantly, and as of now, the stock is in the red year-to-date (YTD). This recent fall is part of a broader trend impacting the Indian stock market, which has seen a sharp downturn, with both the Sensex and Nifty 50 indices falling more than 1.5% each.

A Sharp Decline in Reliance Share Price

On Monday, Reliance Industries' share price slumped by as much as 4.03%, hitting ₹1,285.10 on the Bombay Stock Exchange (BSE) during intraday trading. This drop reduced the market capitalization of the company to approximately ₹17.40 lakh crore. The stock has now fallen more than 20% from its 52-week high of ₹1,608.95 per share, which was recorded on July 8, 2024, shortly after the company issued a 1:1 bonus share. This significant decline has raised concerns among investors and analysts alike, as Reliance's share price continues to face downward pressure.

As of November 4, the stock was down about 0.5% year-to-date (YTD). However, it’s essential to note that the company has posted an impressive gain of more than 11% over the past year, signaling that despite the recent dip, Reliance’s performance over a longer period has remained relatively robust.

Broader Market Trends Contributing to the Decline

The fall in Reliance’s stock price coincided with a broader crash in the Indian stock market. On the same day, both the benchmark indices, Sensex and Nifty 50, tumbled by over 1.5%, marking one of the most dramatic declines in recent months. The sell-off extended across all sectoral indices, with the Oil & Gas, Metals, Auto, and Banking sectors being the hardest hit.

Reliance, being a major player in the Indian market and heavily involved in the Oil & Gas sector, was not immune to these broader market trends. The company’s performance is often closely tied to fluctuations in global oil prices and the overall economic environment. Therefore, the steep fall in its stock price can be attributed to a combination of internal financial performance and external market factors.

Reliance Industries’ Q2 Financial Results

For the quarter ending September 2024, Reliance Industries reported a 4.77% decline in its consolidated net profit, which totaled ₹16,563 crore, down from ₹17,394 crore in the same quarter last year. This reduction in profit can be attributed to several factors, including fluctuations in commodity prices and challenges in certain business segments. However, the company’s total income for the quarter saw a marginal increase of 0.65%, reaching ₹2,40,357 crore, compared to ₹2,38,797 crore in the corresponding period the previous year.

One of the significant concerns raised by analysts was the performance of the company’s oil-to-chemicals (O2C) segment. In Q2FY25, Reliance’s consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization) dropped by 2% year-on-year, amounting to ₹43,934 crore. The EBITDA margin for the quarter stood at 17%, slightly lower than the 17.5% recorded in the same period last year. This dip in profitability is particularly concerning given Reliance’s heavy reliance on its O2C business, which contributes significantly to its overall earnings.

Positive Outlook from Analysts

Despite the recent decline in Reliance’s share price, some analysts are maintaining a positive outlook for the stock. HDFC Securities, for example, has reaffirmed its ‘ADD’ rating for Reliance, suggesting that investors should hold their positions in the stock. The brokerage remains optimistic about the company’s future performance due to several key factors.

First, there is the expected recovery in the O2C business, which is a crucial segment for Reliance. Analysts believe that the company could benefit from higher oil prices and improving demand in the coming quarters. Second, the company’s digital segment, which includes its telecom business under Jio, is expected to continue growing, driven by increased average revenue per user (ARPU) and subscriber additions. This growth in the digital sector provides a buffer against slower growth in the traditional oil and gas business.

Additionally, there is significant potential for value unlocking in Reliance’s digital and retail businesses. The company’s retail segment has been expanding rapidly, and analysts expect this division to contribute increasingly to the company’s bottom line in the future. These factors combined could help Reliance recover from its recent slump and potentially drive the stock price higher over the long term.

Technical Analysis and Future Outlook

From a technical standpoint, Reliance’s share price is currently trading near its 100-week moving average (WMA) of ₹1,288. This level is seen as crucial support, with analysts identifying ₹1,280 as the next critical support level. If the stock price breaks through this support level, it could signal further declines, but if it holds steady above ₹1,280, there is potential for a bounce-back in the near term.

Milan Vaishnav, founder of ChartWizard FZE and Gemstone Equity Research, suggests that the recent decline in Reliance’s stock price presents a buying opportunity for long-term investors. He recommends that investors consider entering at current levels, with a stop-loss set around ₹1,265 to ₹1,270. Vaishnav’s analysis indicates that the stock could see a recovery in the coming weeks if it maintains support at these levels.

Conclusion: Should You Buy or Hold Reliance Shares?

Reliance Industries’ recent share price decline, coupled with the broader market’s downturn, has left many investors cautious. However, it’s important to remember that the company is one of the largest and most diversified businesses in India, with a significant presence in oil, telecom, and retail sectors. While the company has faced challenges in its O2C business and has seen a drop in profitability, it continues to show growth in its digital and retail segments, which could provide substantial upside in the long term.

For those already holding Reliance shares, the recommendation is to continue holding and monitoring market conditions closely. For potential buyers, this may be a good time to consider entering at current levels, especially if you have a long-term investment horizon.

Reliance’s stock has always been a favorite among institutional investors and retail traders alike, and despite the recent dip, its diversified business model and growth potential in digital and retail make it a stock worth watching in the coming months.

Investors should stay informed about global oil price trends, as well as the company’s upcoming quarterly results, which will provide further insights into the performance of its core business segments. As always, consulting with a financial advisor is crucial before making any investment decisions.

Reliance Industries shares fell 4% to ₹1,285.10, marking a nine-month low, as heavy selling pressure impacted the stock amidst a broader downturn in the Indian stock market