RIL: As Nifty50 rebounds from 1-year lows, heavyweight RIL has little to contribute

Benchmark Nifty50 rebounded sharply from its one-year lows, hit in June, and scaled a record high. But the stock that has failed on doing the weightlifting in this journey of the index is none other than .
has the highest weightage in Nifty50 at over 11%, but the stock has been the biggest underperformer among the top 5 stocks that hold the maximum weightage in the 50-stock index.

RIL shares have net gained just 4.5% from June, when markets hit an over one-year low. And the majority of the gains have come in November. This month, the stock has net gained over 6%.

On the other hand,

, , , and Housing Development Finance Corp – the other four stocks that have high weightage in Nifty 50 – have gained over 17-38%

since June.

What led to the underperformance?

One of the major factors resulting in the underperformance of this heavyweight stock has been the imposition of windfall gains tax on domestically produced crude oil and on fuel exports by the government in July.

The special additional excise duty was imposed by the centre to tax the windfall gains made by oil producers in the backdrop of higher crude oil prices.

RIL, Oil India and Oil and Natural Gas Corp had reported massive profits for the March quarter of FY22, when crude oil prices tested multi-year highs in the wake of Russia’s invasion of Ukraine.

After reporting a high double-digit growth in the operating profit for two consecutive quarters, RIL’s mainstay oil-to-chemicals (O2C) business reported a 6% decline in the September quarter, weighed down by the additional cess.

The tax imposition triggered earnings estimate cuts for the company by analysts, which further marred the stock performance.

Will RIL get its mojo back?

The bleak outlook for the O2C business has indeed weighed on the stock performance, but market experts aren’t going all bearish on the stock, as the outlook for the other two major business – telecom and retail – remains bright.

“Reliance is on a very strong footing; yes people have to be patient with it because being a conglomerate, positive and negatives do balance out at certain points of time, but on the whole,

looks like a good bet,” Nischal Maheshwari, CEO – institutional equities at Centrum Broking told in an interaction with ET Now.

According to Harshvardhan Dole of

, while it is difficult to speculate on the timing for a rerating for RIL stock, the strong cash flow generation gives the confidence that the conglomerate can fund its capital investment plans.

“..I am maintaining our conviction that all the three businesses are doing reasonably well and the stock is well poised for a rerating,” Dole said.

(With data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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