Resurgent RIL poised for new highs taking the market along

Mumbai: Reliance Industries (RIL) was at the vanguard of hauling India’s equity markets out of the Covid sinkhole last summer. A repeat act by the country’s most valuable company the very next season is helping the broadest indices scale new highs, vaulting past the wall of worry.

Accounting for nearly an eighth of the weightings on the Sensex and the Nifty, RIL has played a leading role in helping the latter gauge reach another record summit in the current bull-run. Decadal high spreads in polymers have stoked demand in the shares of RIL, which have rallied 11% in the past week. That helped the Nifty, which has seen its fair share of stragglers, still climb more than 2%.

And RIL isn’t done yet.


“RIL is now moving out of eight months of higher-base formation, signalling the end of a corrective phase and resumption of a new uptrend, thus offering fresh entry opportunities,” said Dharmesh Shah, technical analyst, ICICI Securities. “We expect the stock price to surpass its lifetime highs of ₹2,369 and head toward ₹2,490 apiece, which is 124% external retracement of its September 2020-March 2021 decline.”

The technical charts, according to analysts, are signalling another 15% short-term rally in the stock, pulling the Nifty ahead. RIL climbed half a percentage point Tuesday to close at ₹2,169 apiece.

To be sure, if the current polymer spreads sustain in FY22, RIL’s operating profit estimates could surge 14%. A recent note by Jefferies said that the spreads are unusually high on strong downstream demand. If the trend persists, RIL will see a 50% upside to its segment EBITDA.

“Sustained strong petrochemical performance improves the likelihood of Reliance O2C (oil to chemicals) stake sale in FY22, and this could lead to a reversal of the 40% Nifty underperformance,” said a note by Jefferies. It expects the stock to reach a price of ₹2,580.

The sharp increase in demand for polymer is underpinned by strength in downstream industries, such as automobiles, durables, consumer goods, medical supplies, and packaging, especially in the US and China.

The RIL stock nearly trebled between March and September last year — from a closing low of ₹875 on March 23 to ₹2,324 on September 16 — after a series of fundraising in its telecom and retail businesses and a record rights issue. Since then, the stock trailed the broader benchmarks.

The current momentum oscillator indicates the rally would continue.

“The sideways range breakout and sustained gains above the 200-DMA (₹2,045) indicate resumption of the much-awaited uptrend,” said Sandeep Porwal, technical analyst, Ashika Stock Broking.

According to Gaurav Bissa, an analyst at LKP Securities, the RIL stock has jumped from an immediate support area and is now on the cusp of a breakout from the triangle pattern. “The relative strength chart of RIL… implies the RIL/Nifty ratio is expected to go up strongly, and… this outperformance is expected to continue for weeks to come,” Bissa said.