RIL shares end lower for 2nd straight day, off 20% from all-time high; should you buy RIL stock amid sell-off?

Reliance Industries Ltd shares ended lower for the second straight day on Tuesday, after falling about 9% yesterday and closing at a three-month low. The stock opened at Rs 1,888; made a low of Rs 1,843.40; and a high of Rs 1,898.20 apiece, so far in the day, swinging between 1.12-2 per cent gain and loss. Analysts at Macquarie believe that RIL’s FY22 EPS will grow 20 per cent to Rs 73 per share. Macquarie’s estimate is 23 per cent below consensus, explained by its view of a slower recovery in Reliance’s refining and chemical margins, slower pace of ARPU hikes, lower retail margins as JioMart scales up, high competition in retail, higher working capital for retail, higher capex for Jio and retail, and higher minority interests. The brokerage firm has an ‘underperform’ rating to the stock.

RIL shares ended 1.48 per cent down at Rs 1,849.45 apiece on BSE, as compared to a 1.27 per cent rise in S&P BSE Sensex. RIL stock has fallen 20.85 per cent from its 52-week high of Rs 2,368.80 apiece. In the previous session, RIL lost a massive Rs 1.2 lakh crore market capitalisation, which was more than its revenue for the three months ended September 2020. The fall in the shares was triggered by a decline in oil prices and weak July-September quarter earnings.

Moody’s Investors Service on Monday said that oil-to-telecom-to-retail conglomerate has shown improvement in pre-tax profits in the July-September quarter as the Indian economy rebounded and the company’s asset monetisation strengthened its balance sheet. It also believes that the company’s earnings will gradually recover to pre-pandemic levels as RIL’s credit metrics will remain strongly positioned for its Baa2 rating because of its zero net debt status on a reported basis.

What technical charts say

Shrikant Chouhan, Executive Vice President (Equity Technical Research) at Kotak Securities, said that Reliance Industries Ltd is in a corrective pattern that should end at 1810/1790 levels. These levels were last seen in July 2020. Chouhan said that in the last leg of the corrective pattern, the stock falls rapidly. A similar sort of correction has been witnessed. Investors are advised to buy RIL shares with a final stop loss at Rs 1,750 apiece. “For medium-term investors it would be an opportunity to accumulate between 1850 and 1650 as the risk-reward ratio to fair price consensus price target (2300/2400) is quite decent,” Shrikant Chouhan added.

Research and brokerage firm JM Financial has reiterated its ‘buy’ rating to RIL stock along with key risks such as limited ARPU hike, challenges in the monetisation of digital opportunities and new commerce business, and continued weak downstream margins.