Despite a recent 8% underperformance relative to the Nifty index this quarter and a lower weight among mutual funds compared to its NSE200 weight, Reliance Industries Ltd (RIL) is displaying promising signs of resilience and potential recovery.Â
The company’s stock, which previously reached a peak of Rs 3,218, has recently dipped to Rs 3,025.10. However, it is currently exhibiting a bullish technical formation known as "higher tops and higher bottoms." This pattern, coupled with the stock trading above both its long-term and short-term Exponential Moving Averages (EMAs), suggests that there could be further upward movement. Specifically, the stock's current price is above its 100-day EMA level of Rs 2,966, indicating stability and potential for gains after a period of significant selling over the last ten months.
Looking ahead, RIL's upcoming board meeting on September 5 is expected to be a significant event. The agenda includes the discussion of a potential bonus share issuance. This move could significantly boost investor sentiment and provide a catalyst for the stock’s performance. According to JM Financial, such a development could position RIL to outperform the broader Nifty index in the near term.
Furthermore, the September futures and options (F&O) series have experienced a substantial increase in open interest, reaching 48.7 million shares, which is higher than the previous average of 40 million shares. This surge suggests a strong bullish sentiment among investors.
Despite the underperformance relative to the Nifty and a lower weight among mutual funds, RIL’s performance ratio to the Nifty is currently at 0.1205, close to its post-COVID-19 lows. Historically, this ratio has found support in the range of 0.1159-0.12, indicating a lower likelihood of a significant breakdown and a potential rebound.
At its 47th Annual General Meeting (AGM), RIL announced that its board will consider a 1:1 bonus share issue. This potential bonus issuance could enhance investor confidence and attract new interest in the stock. While the company did not disclose plans to monetize its major subsidiaries, such as Reliance Jio Infocomm and Reliance Retail Ventures Ltd, it did outline an ambitious roadmap for its new energy business. This strategy has garnered positive reactions from analysts and is seen as a forward-looking approach to sustaining growth and innovation.
In conclusion, the combination of a promising technical pattern, an upcoming potential bonus share issue, and a resilient performance ratio presents a compelling case for Reliance Industries as a significant investment opportunity. These factors collectively suggest that RIL could outperform the broader Nifty index and provide substantial value for investors in the near future.
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