Reliance heads into earnings with most analyst 'buy' calls since 2008

By Chiranjivi Chakraborty and Savio Shetty

 

Sell-side analysts are the most bullish on Reliance Industries Ltd. since 2008, reflecting optimism for a better outlook ahead of earnings due later Friday.

 

More than 92 per cent of the 39 brokerages tracked by Bloomberg have a buy recommendation on the shares of India’s largest privately owned refiner. Firms from Macquarie Group Ltd. to Kotak Securities Ltd. have upgraded their rating on billionaire Mukesh Ambani’s flagship firm since January, with analysts highlighting its cheap valuation and a potential recovery after disappointing earnings in six out of the last seven quarters.  

 

“The stock had priced everything that could go wrong,” said Varatharajan Sivasankaran, a top-rated analyst from Antique Stock Broking Ltd. who raised his rating in January. “We are definitely in a much better situation, in terms of outlook for individual businesses, than at the beginning of the year.”  

 

 

Reliance shares have rallied more than 13 per cent from a low earlier in April, beating the benchmark NSE Nifty 50 Index and shaking off concerns over US President Donald Trump’s trade war. That’s lifted their valuation to 21 times earnings estimated for the next 12 months, in line with the five-year average. 

 

Analysts have grown more confident even as they expect the Mumbai-based company to report a decline in quarterly net income, with Morgan Stanley pointing to a rise in interest costs and depreciation of expenses in the consumer-focused businesses. Still, the Wall Street bank anticipates earnings will recover for some units and sees revenue from the retail operations rising 10 per cent. 

 

Traders are bracing for a 2.7 per cent one-day move in the shares after the results, more than the average fluctuation of 1.9 per cent following the last eight quarterly reports. That contrasts with the past three earnings, when the implied move was underpriced ahead of the release. 

 

Meanwhile, the cost of hedging against stock declines in the coming month has dropped from a high earlier in April, and calls with an exercise price 7.6 per cent above the last close were the most owned.