Over the past seven months, shares of the Mukesh Ambani-led company have moved just 2 per cent in sharp contrast to the 25 per cent rise in the benchmark indices.
Market participants have many time tried to prematurely predict the end of the giant’s sleep over the past few months only to see their prophesies come to naught.
Domestic investors, in particular, have shown little interest in the stock, while buying from foreign investors has barely matched the selling by their domestic counterparts.
Much of this underperformance has had to do with doubts over the company’s ability to deliver on the lofty expectations that investors had during the company’s capital-raising phase between April and September.
The more than Rs 2 lakh crore raised by Mukesh Ambani by selling small chunks of his family silver in order to prepare his company for the post-pandemic future led to its comparisons with the likes of Facebook, Google, Amazon and Microsoft – three of whom are now company’s partners and one is waging a bitter legal battle against its interest.
In recent sessions, signs are emerging that may be ready to get out of its slumber and re-join the bull market that has recently hit a roadblock in the wake of the second Covid-19 wave. In the past five sessions, the stock has risen 5 per cent backed by heavy trading and delivery volumes.
In the period mentioned above, 728,735 shares of the company have traded on average on BSE, which is 25 per cent higher than the previous one-month’s average. Similarly, average deliverable shares have stood at 61 per cent against the one-month average of 43 per cent.
Technically, too, the stock’s crossover of the 200-day exponential moving average on Tuesday suggested average returns of at least 10 per cent within the next 30 days going by similar trends seen in the past five years, data compiled by ETMarkets.com showed.
“Our interactions with 100 investors upon assuming coverage of the RIL stock indicate overseas investors are significantly more constructive on the counter compared with their domestic counterparts. The majority see RIL as the local champion with the right to win in retail and telecom,” brokerage firm Jefferies India wrote in a recent note.
While there have been false dawns before with RIL over the past six months, there are signs that investors are sensing some fundamental improvement in the company’s outlook.
For starters, the fog that had engulfed the company’s telecom business is steadily dissipating. Over the past six months, RIL has seen itself lose the initiative on customer acquisition to its chief rival Bharti Airtel due to issues with its network as well as damage from farmers’ protests in North India.
ETMarkets.comThe recent acquisition of idle spectrum from Bharti Airtel and at the government auction as well the fading of farmer protests means the company can expect to accelerate customer acquisition from June quarter itself.
At the legacy oil-to-chemical business, the chief trigger remains the proposed stake sale to Saudi Aramco. The company has set the stage with the demerger of the operations and the resuscitation of the global crude oil market means the probability of a deal by the end of the year is improving.
The oil-to-chemical business will also benefit from a resurgence of global aviation fuel demand as air travel to vaccinated Western countries is set to resume with a vengeance in the coming summer months.
Further, surging global chemical prices such as polyethylene and Polyethylene Terephthalate should also boost earnings in the coming quarter.
The outlook on the retail business still remains hazy given the ongoing court battle between Amazon and Future Group over RIL’s acquisition of the latter’s retail and wholesale business last year. Yet, investors will find comfort if the March quarter earnings show signs that the e-commerce business under JioMart is picking up steam.
Jefferies is counting on some of these key triggers to play out in the coming months, especially the launch of the affordable smartphone in partnership with Google and the stake sale in energy operations to Aramco.
The brokerage believes if everything falls into place, the stock should be close to its price target of Rs 2,600, implying an upside of over 30 per cent in next 12 months. Investors will hope that Ambani will deliver the goods just as his track record has shown over the past five years.
