RIL slides on EIH stake buy

The share price of Reliance Industries Ltd (RIL) fell 3.1 per cent today as investors gave a thumbs down to its purchase of a stake in East India Hotels (EIH).

The stock fell Rs 28.90 on the Bombay Stock Exchange (BSE) to Rs 918.8. It was trading near its 52-week low on the National Stock Exchange (NSE). Intra-day, it hit a low of Rs 916 on the National Stock Exchange (NSE) and Rs 915 on BSE, where it had hit Rs 840 for a few minutes just a couple of months earlier, in a freak trade.

Its weight in the BSE’s benchmark index, the Sensex, has come down from 13.7 per cent at the start of this year to 11.78 per cent today. The counter reported the highest volumes of over 10.06 million shares on NSE and 2.6 million on BSE today, as against the combined average volume of six million shares.

According to market players, weakness in the global petrochemical sector and steep fall in stock prices of the world’s largest oil and gas companies are among the reasons for lack of buying interest in the RIL counter, apart from the company’s delay in ramping up production at the Krishna-Godavari (KG) basin.

“Stocks of some of the world’s largest oil and gas companies are available at a cheaper price. In such a scenario, foreign investors are buying oil and gas assets in global markets, even while they are pumping money in other sectors in India,” said the head of research at a Mumbai-based institutional brokerage house.

While the stock of RIL has declined 15.7 per cent year to date, share prices of many of the top 20 oil and gas producing companies have slipped more. Britain’s BP fell 38 per cent, Brazil’s Petrobras was down 30.6 per cent, Russia’s OAO Rosneft slipped 22 per cent, French Total SA was down 19.1 per cent and Germany’s Statoil ASA has fallen 19.06 per cent so far this year. Exxon Mobil, Petro China, Royak Dutch, Suncor Energy and Chevron Corporation have declined 5-12 per cent during the period.

Jigar Shah, vice president and head of research at Kim Eng Securities, who issued a ‘buy’ call on the stock today, said, “RIL is co-related with global growth of crude oil and other commodity prices. Currently, with oil prices significantly low and lack of any major trigger, the counter is under-performing.”

While the Sensex has moved up by close to three per cent this year, the RIL stock fell 15 per cent. The foreign institutional investor holding in RIL was 17.2 per cent in June, as compared to 17.6 per cent in March.

The company is currently pumping about 60 million standard cubic metres (mscmd) of gas per day from the D6 block in the KG Basin, which was expected to be ramped up to 80 mscmd per day. The company could stand to gain more when production is raised by next year, as the price of natural gas is expected to rise globally, which could also put pressure on India.

In May this year, Ambani had forecast that global crude oil prices could zoom up to $100 per barrel in the near future on the back of sluggish growth in petrochemicals and the high cost of exploration and production, which has not happened till now. The stock touched its lifetime high when the price of global crude was hovering at $150 a barrel.