Why is Reliance Industries Ltd falling/rising?

Short-Term Price Movement and Market Context

Reliance Industries’ recent price action reflects a period of underperformance relative to both its sector and the broader market. Over the past week, the stock has declined by 3.73%, significantly underperforming the Sensex’s 1.69% fall. The trend has extended into the month-to-date and year-to-date periods, with the stock down 6.72% and 7.51% respectively, compared to the Sensex’s more modest declines of 1.92% and 1.87%. This divergence highlights a phase of investor caution or profit-taking in the near term.

On the day in question, the stock touched an intraday low of Rs 1,445.15, marking a 2.57% drop from previous levels. The decline followed a brief rally, indicating a reversal in momentum. Notably, the stock’s price remains above its 200-day moving average, a long-term bullish indicator, but below its shorter-term moving averages (5, 20, 50, and 100 days), suggesting recent weakness in investor sentiment.

Investor participation has also waned, with delivery volumes on 12 Jan falling by over 42% compared to the five-day average. This reduction in trading activity may have contributed to the stock’s vulnerability to downward price pressure, as lower volumes can amplify price swings.

Strong Fundamentals Underpinning Long-Term Value

Despite the recent price softness, Reliance Industries continues to demonstrate solid financial health and growth prospects. The company maintains a low Debt to EBITDA ratio of 1.04 times, underscoring its strong ability to service debt and manage leverage prudently. This financial discipline is a key factor in sustaining investor confidence over the long term.

Operationally, Reliance has delivered healthy growth, with net sales expanding at an annual rate of 15.36% and operating profit increasing by 16.84%. These figures reflect the company’s capacity to grow its core business profitably amid competitive pressures. Furthermore, its return on capital employed (ROCE) stands at 11.8%, indicating efficient utilisation of capital resources.

The stock’s valuation metrics also suggest it is trading at a discount relative to its peers’ historical averages. With an enterprise value to capital employed ratio of 2.1 and a PEG ratio of 1.1, the company appears fairly valued, balancing growth and profitability. Over the past year, Reliance has generated a total return of 17.05%, outpacing the Sensex’s 9.56%, while profits have risen by 22.4%, reinforcing its status as a growth-oriented largecap.

Institutional investors hold a significant stake of 39.08%, reflecting confidence from sophisticated market participants who typically conduct thorough fundamental analysis. This backing provides a stabilising influence on the stock, even amid short-term volatility.

Market Leadership and Sector Influence

Reliance Industries commands a dominant position in its sector, with a market capitalisation of Rs 20,07,271 crore, representing 69.27% of the entire sector’s market value. Its annual sales of Rs 999,629 crore constitute nearly 29% of the industry’s total, underscoring its scale and influence. This leadership status often affords the company resilience against sectoral headwinds and competitive challenges.

However, the stock’s recent underperformance relative to the sector by 1.11% on the day indicates that investors may be digesting broader market factors or short-term concerns, rather than company-specific weaknesses. The liquidity profile remains adequate, supporting sizeable trade volumes without excessive price impact, which is important for institutional and retail investors alike.

Conclusion: Navigating Short-Term Volatility Amid Strong Fundamentals

In summary, Reliance Industries Ltd’s share price decline on 13-Jan reflects a short-term correction following a brief rally, compounded by reduced investor participation and pressure from moving averages signalling near-term weakness. Nevertheless, the company’s robust financial metrics, consistent growth in sales and profits, and dominant market position provide a strong foundation for long-term value creation.

Investors should weigh the current price softness against these fundamentals and the stock’s historical outperformance relative to the Sensex. While short-term volatility may persist, Reliance’s strong institutional backing and fair valuation suggest it remains a core holding within the largecap universe.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →