Reliance Industries Heading For Negative Returns In 10 Years — What Isn't Working For The Stock
RIL’s share price has seen a significant correction since September and is now trading at its bear case scenario.
Mukesh Ambani's Reliance Industries has underperformed the market in the last three months and is in sight to post negative yearly return in the last ten years.
The third most prominent index heavyweight with 8% weight in the Nifty 50 has corrected 15% in the last three months thereby dragging the Nifty down by over 4.9% during the same period.
Reliance has been the biggest loser in terms of contribution to the Nifty 50 index during this period followed by ITC and HUL.
Reliance has been underperforming since its Annual General Meeting when it disappointed the shareholders with no clear timeline for monetisation of the Reliance Retail and Reliance Jio. The company though announced a surprise bonus of 1:1 on the day of the AGM to calm investor nerves but stock continues to be an underperformer. The company has posted a negative return of 2.3% in 2024 so far for the first time since 2014.
In 2024, the stock gave 10.34% and 9.44% return in the month of January and June ahead of the AGM. However, since September it has been giving negative returns for the shareholders and this coincides with rise in futures short position which has risen to above Rs 21,000 crore next only to HDFC Bank.
The rise in open interest position is also an indication of the expectation of prolonged underperformance and investors rushing to hedge their positions in their portfolios.
Passive funds which are benchmarked to the index components have underperformed in the last few months while actively managed funds that have RIL between 8-10 per of their portfolio have underperformed the benchmark indices.
Reliance is facing heat from multiple levels, Its Retail operations are undergoing restructuring and consolidation and that has delayed the shareholder unlocking plans for the company which is facing competition from quick commerce and structural retail shift.
The company plans to ramp up average revenue per user is slower than expected as competition and sim card consolidation taking the industry forward but the full-scale impact of the tariff hike is yet to take into effect.
The oil & gas and petchem business is under margin pressure and the new energy business, which has a large chunk of capex, is under way but operationalisation is behind schedule.
In addition the capex of the last few years was supposed to generate significant cash flows from operations but global headwinds and margin impact have ensured the cash flows are below the projected levels requiring the company to seek debt to finance capex and other growth plans.
A Reliance reversal of the last three months' share price loss alone can add over 340 points to the Nifty 50.
