Reliance Industries Downgraded to Hold Amid Mixed Technical and Financial Signals

Quality Assessment: Solid Fundamentals Amid Flat Quarterly Performance

Reliance Industries continues to demonstrate robust operational quality, supported by a strong ability to service debt with a low Debt to EBITDA ratio of 1.04 times. The company’s long-term growth trajectory remains healthy, with net sales expanding at an annualised rate of 15.36% and operating profit growing at 16.84%. Return on Capital Employed (ROCE) stands at a respectable 11.8%, signalling efficient capital utilisation in a capital-intensive oil sector.

However, the recent quarterly financials for Q2 FY25-26 have been largely flat, with a notable 10.9% decline in quarterly PAT to ₹18,165 crore compared to the previous four-quarter average. Inventory turnover ratio for the half-year is at a low 0.69 times, and the debt-equity ratio has increased to 1.42 times, the highest in recent periods. These factors have contributed to a more cautious quality grade, reflecting short-term operational challenges despite the company’s entrenched market leadership.

Valuation: Fair but Discounted Relative to Peers

From a valuation standpoint, Reliance Industries is currently graded as Hold, reflecting a fair valuation with an Enterprise Value to Capital Employed ratio of 2.1. The stock trades at a discount compared to its peers’ average historical valuations, which may offer some cushion for investors. The company’s PEG ratio of 1.1 indicates that its price is reasonably aligned with earnings growth, which has risen by 22.4% over the past year.

Despite this, the downgrade from Buy to Hold suggests that the valuation premium previously enjoyed by Reliance has moderated, likely due to the recent earnings softness and the broader market context. The stock’s current price of ₹1,507.70 is below its 52-week high of ₹1,611.20, reflecting some profit-taking and cautious sentiment.

Financial Trend: Mixed Signals with Flat Quarterly Results but Strong Long-Term Growth

Reliance’s financial trend presents a mixed picture. While the recent quarter showed flat performance and a decline in PAT, the company’s long-term financial health remains robust. Over the past year, Reliance has generated a total return of 23.76%, significantly outperforming the BSE500 index return of 7.74%. Over a 10-year horizon, the stock has delivered an extraordinary 541.08% return, more than doubling the Sensex’s 234.81% gain.

Net sales and operating profits have grown steadily, supporting a narrative of sustainable expansion. The company’s strong institutional holding of 39.08% also underpins confidence from sophisticated investors who typically conduct rigorous fundamental analysis. However, the recent quarterly softness and elevated debt-equity ratio have introduced caution, prompting a reassessment of the financial trend from bullish to neutral.

Technical Analysis: Downgrade from Bullish to Mildly Bullish Momentum

The most significant trigger for the rating downgrade is the shift in technical indicators. Previously classified as bullish, the technical trend has softened to mildly bullish. Key momentum indicators such as MACD remain bullish on weekly and monthly charts, and the KST indicator continues to signal strength. However, other metrics have weakened: the Relative Strength Index (RSI) shows no clear signal on weekly and monthly timeframes, and the On-Balance Volume (OBV) lacks directional trend.

Bollinger Bands and moving averages have shifted to mildly bullish, reflecting reduced upward momentum. Dow Theory analysis shows no trend on the weekly chart and only a bullish signal on the monthly chart, indicating uncertainty in shorter-term price action. The stock’s price has declined 4.42% on the day of the downgrade, closing at ₹1,507.70, below the previous close of ₹1,577.45, and near the day’s low of ₹1,497.05.

This technical moderation suggests that while the stock is not in a bearish phase, the momentum has slowed, warranting a more cautious stance from investors and analysts.

Market Position and Sector Context

Reliance Industries remains the dominant player in the oil sector, with a market capitalisation of ₹20,40,290 crore, constituting nearly 69% of the sector’s total market cap. Its annual sales of ₹9,99,629 crore represent 28.73% of the industry, underscoring its scale and influence. Despite recent challenges, the company’s size and sector leadership provide a strong moat against competitors.

However, the stock’s recent underperformance relative to the Sensex and BSE500 indices over short-term periods (1 week and 1 month returns of -2.15% versus Sensex’s +0.46% and -0.76%, respectively) reflect market caution amid broader macroeconomic and sector-specific headwinds.

Conclusion: A Balanced Hold Recommendation Reflecting Mixed Signals

The downgrade of Reliance Industries Ltd from Buy to Hold by MarketsMOJO on 6 January 2026 reflects a comprehensive reassessment across multiple parameters. While the company’s quality remains strong with solid long-term growth and a healthy debt servicing ability, recent flat quarterly results and a rise in debt-equity ratio have introduced caution.

Valuation remains fair but no longer offers a compelling premium, and technical indicators have softened from bullish to mildly bullish, signalling a pause in momentum. The stock’s market-beating returns over the past year and decade underscore its resilience, but short-term headwinds and technical moderation justify a more conservative stance.

Investors should weigh Reliance’s entrenched market leadership and strong fundamentals against the recent operational softness and technical signals. The Hold rating suggests maintaining exposure while monitoring upcoming quarterly results and technical developments for clearer directional cues.

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