Why is Reliance Infra. falling/rising?

Recent Price Movement and Market Context

Reliance Infrastructure’s stock has recorded a three-day consecutive gain, accumulating a 15.7% return over this short period. This recent rally contrasts with its longer-term performance, where the stock has declined by 48.25% over the past year, significantly underperforming the Sensex, which gained 3.59% in the same timeframe. The one-week return of 7.30% also outpaces the Sensex’s marginal 0.02% rise, indicating a short-term resurgence in investor interest.

Intraday, the stock touched a high of ₹150, outperforming its sector by 5.62% on the day. However, it remains below its 20-day, 50-day, 100-day, and 200-day moving averages, signalling that the recent gains have yet to establish a sustained upward momentum beyond short-term fluctuations. Additionally, delivery volumes have declined slightly by 3.65% compared to the five-day average, suggesting a cautious approach by investors despite the price rise.

Valuation and Profitability Insights

One of the key factors supporting the recent price rise is the stock’s attractive valuation metrics. Reliance Infrastructure trades at a discount relative to its peers’ historical averages, with an enterprise value to capital employed ratio of just 0.5. This valuation appeal is underscored by a return on capital employed (ROCE) of 3.8%, which, while modest, is considered very attractive in the current market context.

Moreover, the company’s profits have surged by an impressive 617.5% over the past year, a stark contrast to the stock’s negative price returns. This divergence suggests that investors may be beginning to price in potential improvements in operational efficiency or future earnings growth, despite the stock’s recent underperformance.

Challenges Tempering Investor Confidence

Despite the recent gains, several fundamental weaknesses continue to weigh on the stock’s longer-term outlook. The company’s average ROCE over time stands at a low 4.58%, reflecting weak long-term capital efficiency. Additionally, Reliance Infrastructure faces significant debt servicing challenges, with a high Debt to EBITDA ratio of 7.32 times, indicating elevated leverage and financial risk.

Quarterly results for September 2025 further highlight these concerns, with profit before tax excluding other income falling by 47.1% compared to the previous four-quarter average. Net profit after tax declined even more sharply by 61.1%, signalling operational pressures that have yet to be fully resolved.

Institutional investor participation has also diminished, with a 3.29% reduction in stake over the previous quarter. These investors, typically more adept at analysing company fundamentals, now hold just 8.36% of the stock, reflecting a cautious stance amid the company’s mixed performance and financial risks.

Long-Term Performance and Outlook

Over a five-year horizon, Reliance Infrastructure has delivered a remarkable 428.17% return, far outpacing the Sensex’s 81.46% gain. However, this strong historical performance is overshadowed by recent underperformance, with the stock generating negative returns over one, three, and twelve-month periods. It has also lagged the broader BSE500 index consistently, reflecting ongoing challenges in sustaining growth and investor confidence.

The recent price rise appears to be a short-term rebound driven by valuation appeal and profit growth, rather than a fundamental turnaround. The stock’s liquidity remains adequate for moderate trade sizes, but the subdued investor participation and weak quarterly results suggest caution is warranted.

Investors should weigh the stock’s attractive valuation and profit growth against its high leverage, declining institutional interest, and recent earnings weakness before making investment decisions.

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