RIL bonus shares: JM says Reliance stock may outperform Nifty. Here's why

Reliance Industries Ltd (RIL) is likely to outperform Nifty going ahead, JM Financial said in a technical note, ahead of the oil-to-telecom major's meeting on bonus shares on September 5. 

"Post the decline from highs of Rs 3,218 level, the RIL stock has been forming a pattern of higher top higher bottom, a bullish formation. It has started trading above all its key long term and short term EMAs, suggesting further strength to prevail," JM Financial said.

The domestic brokerage said all the major RIL selling in the last 10 months ended marginally below the 100-day EMA level, which is currently placed at Rs 2,958 level. On Tuesday, the scrip was trading flat at Rs 3,033. 

The September F&O series started with a cumulative future open interest of 48.7 million shares against the average of 40 million shares in the last three series. Most accumulation seems to be on the long side, suggesting bullish sentiments are prevailing on the counter, JM Financial said.

Reliance Industries shares have underperformed the Nifty by 8 per cent quarter to date. In comparison to NSE200 weight, mutual funds are underweight on the stock.

"The ratio of RELIANCE over NIFTY (currently at 0.1205 levels) is trading closer to post Covid-19 lows of 0.1159 level, It has managed to find support in the range 0.1159-0.12 levels on multiple occasions in the past 4 years suggesting lower probability of a breakdown to happen. On a 4-year data window, the ratio is trading at 0.8 standard deviation below the mean levels of 0.1294. It is at its 15 percentiles," JM Financial said.

The stock is in news of late after the company on the day of its 47th AGM said its board would meet on Thursday, September 5, to consider and recommend to the shareholders for their approval, the issue of bonus shares in the ratio of 1:1.  At its AGM, RIL did not announce any plans to monetise Reliance Jio Infocomm and Reliance Retail Ventures Ltd, but came out with a clear roadmap on new energy business that impressed analysts. 

"RIL is our top pick. We expect continued strong earnings traction contributed by Jio (recent telecom tariff hikes, 5G rollout and ramp-up of home broadband) and retail (high growth in retail, led by market share gains and new commerce). We firmly believe that it is compelling long term investment bet given strong prospects across business and potential value unlocking from retail, digital services, and financial services portfolio would add to the shareholders’ return over the coming years," Sharekhan said. 

This brokerage suggested a target price of Rs 3,654.