Why is Reliance Infra. falling/rising?

Recent Price Momentum and Market Performance

Reliance Infrastructure’s stock has been on a remarkable run over the past week, delivering a 27.44% return compared to the Sensex’s marginal decline of 0.40%. This surge is particularly striking given the stock’s year-to-date performance, which remains deeply negative at -42.94%, contrasting with the Sensex’s positive 8.69% gain. Over the last six days alone, the stock has appreciated by 33.78%, signalling renewed investor enthusiasm in the short term.

On 19-Dec, the stock outperformed its sector by 3.75%, reaching an intraday high of Rs 173.45. It currently trades above its 5-day and 20-day moving averages, although it remains below the longer-term 50-day, 100-day, and 200-day averages. This technical positioning suggests a short-term bullish trend amid lingering longer-term caution.

Investor participation has notably increased, with delivery volumes on 18-Dec rising by 118.43% compared to the five-day average, reaching 5.71 lakh shares. This surge in trading activity reflects growing market interest and liquidity, making the stock more accessible for sizeable trades.

Valuation and Profitability Contrasts

Despite the recent price appreciation, Reliance Infrastructure’s long-term fundamentals remain mixed. The company’s Return on Capital Employed (ROCE) stands at a modest 3.8%, with an average of 4.58% over a longer horizon, indicating limited efficiency in generating returns from its capital base. However, the stock is currently trading at a very attractive valuation, with an enterprise value to capital employed ratio of just 0.5, suggesting it is priced at a discount relative to its peers’ historical averages.

Interestingly, while the stock has delivered a negative return of nearly 41% over the past year, the company’s profits have surged by an impressive 617.5% during the same period. This divergence between profit growth and share price performance may indicate that the market has yet to fully price in the company’s improving earnings potential or remains cautious due to other concerns.

Over a five-year horizon, the stock has delivered a staggering 559.51% return, far outpacing the Sensex’s 80.85% gain, highlighting its potential for significant long-term wealth creation despite recent volatility.

Challenges Weighing on the Stock

Nevertheless, several factors continue to weigh on investor sentiment. The company’s ability to service debt is under pressure, with a high Debt to EBITDA ratio of 7.32 times, signalling elevated leverage and potential financial risk. This is compounded by disappointing quarterly results for September 2025, where profit before tax excluding other income fell by 47.1% and net profit declined by 61.1% compared to the previous four-quarter average.

Institutional investors have also reduced their holdings by 3.29% over the last quarter, now collectively owning just 8.36% of the company. Given their superior analytical resources, this reduction may reflect concerns about the company’s fundamentals and future prospects.

Moreover, the stock has underperformed the BSE500 index over the last three years, one year, and three months, underscoring its struggles to keep pace with broader market gains in the medium term.

Conclusion: A Stock in Recovery but with Lingering Risks

Reliance Infrastructure’s recent price rise on 19-Dec reflects a short-term rebound fuelled by increased investor participation, attractive valuation metrics, and a notable surge in profits over the past year. The stock’s strong weekly performance and consecutive gains over six days indicate renewed market interest, possibly driven by bargain hunting or speculative momentum.

However, the company’s weak long-term fundamentals, high leverage, disappointing recent quarterly results, and declining institutional ownership temper enthusiasm. Investors should weigh these risks carefully against the stock’s attractive valuation and profit growth before making investment decisions.

In summary, while Reliance Infrastructure is currently experiencing a price upswing, underlying challenges suggest that this rally may be tentative and subject to volatility as the market continues to assess the company’s financial health and growth prospects.

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