Reliance may lead last bit of fall

Here is a verbatim transcript of Udayan's comments on CNBC TV18. Also see the accompanying video.

Reliance has been quite an expensive commodity stock and therefore I think it is coming under quite a bit of pressure. The stock had collapsed to Rs 1,750 kind of levels. Even now it is trading at about 16-times current years’ earnings that is very expensive as a commodity stock. Of course there is sum of parts etc and next year gas may come, so may be it is not as expensive as it looks optically.

Even if you look at EV/EBITDA, it is trading at 10-11 times. You won’t find too many commodity stocks in the world even in the energy space, which are trading at higher PE multiple or EV/EBITDA multiple as Reliance is trading right now.

The thing is that Reliance means something else to the Indian market. It’s our biggest stock and therefore there is certain revered quality about it. But for most FIIs who are on sell mode now, it is just another emerging market commodity stock, which they own a lot of. That perhaps is the problem with Reliance that it is very well over owned by lot of global institutions who are trying to raise capital from markets like India. Reliance is probably a most liquid and easiest stock to sell down now to raise cash.

So I think the twin problems of very heavy ownership which is now unwinding, pulse added with the kind of valuation that Reliance still trades at, makes it a difficult one. Today because of the warrant conversion news it might pop up but we have seen in the past Reliance keeps jumping upto Rs 2,200 kind of levels or Rs 2,100 more recently and then slips once again. So may be the downside is not quite done with this stock and it may still lead in one sense the last bit of the fall in the market.

Source: MoneyControl