Post 30% rise, RIL rating cut by top Nomura analyst for first time in years

A downgrade of Reliance Industries Ltd., India’s biggest stock by market value, by Nomura Holdings Inc. analyst Anil Sharma’s team just days before its earnings citing “rich” valuations will pique investor interest for multiple reasons.
 

Apart from the timing, with commodities hitting new records and Reliance’s earnings due on Friday, Sharma’s move to slash billionaire Mukesh Ambani’s oil-to-tech conglomerate to neutral from buy may carry more weight with investors due to the analyst’s background. It’s also the broker’s first downgrade on the stock in many years, according to data compiled by Bloomberg.

While the outlook for Reliance’s key businesses has continued to improve, the company’s valuations look expensive after a recent surge in its shares, Sharma and his associate Aditya Bansal wrote in a note dated Oct. 18. Shares have risen more than 30% from the end of July, compared with an 18% advance in the benchmark S&P BSE Sensex Index.

The stock is trading at about 27 times of its 12-month forward earnings estimate, more than two standard deviations above its 10-year average, according to data compiled by Bloomberg.

Sharma has been ranked among top analysts for his sectors by some organizations since 2015 including Institutional Investor magazine. Prior to joining the sell-side research, he worked in the oil and gas industry for 14 years, including nine with Reliance, according to Nomura’s website.