Buyback does little to support falling RIL shares

The cup of woes of India’s largest company by market capitalisation, Reliance Industries Ltd (RIL), seem to be increasing over at the bourses. Mukesh Ambani-led RIL’s mega buyback programme has failed to support the share price, while the company has lost its 'heavyweight' tag to software exporter Infosys Technologies.

The stock price of RIL has declined 13.5 per cent since February 7, when the company’s over Rs 10,000-crore buyback programme started. The benchmark Nifty index has declined just 1.7 per cent during the same period. Shares of the company closed 0.12 per cent higher at Rs 730.7 on the Bombay Stock Exchange (BSE) on Tuesday.

According market participants, the stock is under pressure as it has seen large delivery-based selling from institutional investors in the past two weeks. Also, RIL has not purchased significant number of shares under the buyback programme to support the falling share price.

“The company is not aggressively coming forward despite having the proposal in place for a big buyback,” said independent stock market analyst S P Tulsian

RIL had bought back a total of 2.3 million shares as on March 22, data from the BSE website showed. According to back-of-the-envelope calculations, the company has spent about Rs 180 crore, or 1.7 per cent of the total buyback size of Rs 10,440 crore.

“The company has done only a marginal amount of buyback. It would be unfair to pass a judgement unless the company buys a material amount of shares from the market,” said Saurabh Mukherjea, head, institutional equities, Ambit Capital.

Another worrying trend for RIL is its falling weightage on key indices, Nifty and Sensex.

According to daily index weightages provided by Bloomberg, RIL has a weight of 7.63 per cent on the 50-share Nifty index, nearly one percentage point lower than IT firm Infosys Technologies, which has a weight of 8.58 per cent.

Falling weightage means fund managers, especially managing index funds, have to sell the stock to realign themselves to the lower weight.

If the stock's poor run continues it could even slip to third position as FMCG major ITC is less than 10 basis points behind with 7.54 per cent weight on the Nifty.

The plot is similar on the Sensex index, where Infosys is the new heavyweight with 9.69 per cent weightage, followed by RIL at 9.09 per cent.

During January 2008, RIL's weightage on the Nifty and the Sensex stood at 16.67 per cent and 13.17 per cent respectively, Bloomberg data showed.

According to analysts, the stock continues to remain on a weak footing on a fundamental basis due to declining gas output and falling refining margins.

“In the third quarter the company had posted poor results with gross refining margins falling below the Singapore benchmark. There are similar concerns lingering this time around as well which could continue to put pressure on the stock price, ” said Tulsian.