Reliance Industries shares: FII ownership at 6-year low. Should you buy, hold or sell RIL stock?

The risk-reward for Reliance Industries (RIL) shares looks attractive, even as analysts believe near-term catalysts for the stock are missing. Data showed FII ownership in the oil-to-telecom major hit a six-year low of 23.48 per cent in the third quarter. December was also the fifth straight quarter of FII selling on the counter.

"The large foreign sell-off  in the stock (FII ownership in RIL is now at six-year lows), in our view, is supportive from a positioning point of view," JPMorgan, which sees the recent range-bound (Rs 2,300-2,800) stock performance of RIL as a period of consolidation, said.

Data showed FII holding in RIL fell 20 basis points sequentially in the December quarter. This was the fifth  straight quarter of FII stake reduction, and the longest streak of FII sell-down since 2010. 

The stock has underperformed the BSE Sensex year-to-date and in the last one and two-year periods, even as analysts believe the underlying consolidated earnings outlook for Reliance Industries remains strong, driven by refining  and E&P business.

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Reliance Industries is tracked by 37 analysts. Out of them, 32 have ‘Buy’ ratings on the stock, two have 'Hold' ratings and the rest three analysts have 'Sell' calls on the counter. Nomura India has a target of Rs 2,850 on the stock. JPMorgan sees the stock at Rs 2,960. Jefferies finds the stock worth Rs 3,100 while BofA Securities sees it at Rs 2,775. The consensus target for the stock stands at Rs 2,857. On Friday, the scrip settled at Rs 2,223.05.

The recent RIL underperformance is not earnings-driven; the stock has caught up in overall India selloff, JPMorgan said while suggesting a' Buy' rating on the stock. JPMorgan said while it sees no immediate catalysts, RIL continues to  offer multiple growth optionality across businesses and ongoing  investments should drive the next leg of earnings growth.

BofA Securities said it values refining segment at 5.9 times FY23 EV/Ebitda, petrochemical business at 8.2 times FY23 EV/Ebitda and downstream businesses at 6.6 times FY23 EV/Ebitda.

"This is at 10 per cent premium to peer group average to factor in integrated nature of business & RIL's scale. We ascribe Rs 297 (10 per cent of EV) to clean energy business, valuing at 2.7 times P/IC, 40 per cent discount to P/BV of global clean energy peers. We value its offline retail business at 48 times FY23E EV/Ebitda (Rs 917), in-sync with peers average Retail FY23E EV/EBITDA base and for online (Rs 148), we use 4 times price to sales multiple (in line with global e-com peers)," the brokerage said.

RIL’s option value could rise, once its new energy business nears commencement, said Systematix Institutional Equities in a February note.  Mobile tariff hike, listing of retail and Jio and monetisation of O2C and RIL Syngas are a few key upside triggers, it said while initiating coverage on the stock with a target of Rs 2,825.

JPMorgan said the RIL stock is trading 2 per cent above our bear case. The stock’s multiple compression in the last year appears to mirror the index derating rather than reflect new stock-specific risks.

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