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Reliance Industries: Are Major ‘Stock Mover’ Announcements on the way? 

Synopsis:With a market cap of USD 195 billion, Reliance Industries Ltd. has the largest market capitalisation in India. In 2020, there was massive capital infusion through stake sale in different units of the company to global giants like Facebook and Google along with Private Equity investors like KKR & Co., Silver Lake and Mubadala Investment Co. After this frantic fund-raising activity and positive investors’ sentiment, the stock took a breather. After almost nine sluggish months, the stock was up 6% on Friday, 28th May 2021, with 3-4x of average trading volumes seen in recent months. Did it happen because almost out of the blue, the market has become more optimistic about its petrochemicals business or is there something the market is not aware of yet? There is no definite answer and the fog will only clear next week when the markets resume trading on Monday, 31st May 2021. But if we open the window to the past and see what happened on 21st April 2020, which was just immediately before the announcement of Facebook-Jio deal, the possibility of another upcoming big, positive event can’t be ruled out. Monday will indeed be very interesting. 

Reliance Industries: The Petrochem, Telecom and Retail behemoth 

Reliance Industries Limited is the most diversified and most valuable conglomerate in India. Reliance owns businesses in several industries including energy, petrochemicals, natural resources, retail, textiles, and telecommunications. The company operates one of the largest and most modern crude oil refineries in the world and the petrochemicals business is its cash cow. The telecom business (known as Reliance Jio) is the most recent and most talked about addition to its portfolio. 

Reliance Jio is also the prime reason as to why investor interest in the stock has soared over the last few years. Between 2007 and 2017, the stock stayed still as a stone as investors were concerned about the massive capex Jio was incurring in an industry known for hyper competition and the cheapest tariffs in the world, the Indian telecom sector. Jio was launched only after Reliance Industries had laid the infrastructure throughout, almost the entire country. The result of the labour can be seen as in a matter of few years, Jio has rewritten the rules for the Indian Telecom industry. 

Figure 1: Stock price of Reliance Industries over last twenty years

Source: Google

The year 2020 was extremely eventful for Reliance as global tech giants like Facebook and Google invested in the company with a few well know private equity investors with deep pockets following suit. The company raised almost USD 27 billion in fresh capital, close to half of the total Foreign Direct Investment the country received in financial year 2020-21 (1st April 2020 to 31st March 2021). These investors are confident that an old-economy conglomerate can transform into a major technology and e-commerce player. 

This optimism has reflected in the stock price movement as well. In the six months between mid-March 2020 and mid-September 2020, the stock price went up more than 125% and because of its weight in the major market indices of India (the NIFTY 50 and BSE SENSEX), Reliance Industries was also the main contributor to the rise of Indian Equity markets. The stock attracts interest from global investors for other reasons as well. For example, Reliance Industries is among Top 10 constituents of MSCI Emerging Markets Index and it is the only Indian company to feature in that list.

Figure 2: Stock price of Reliance Industries over last five years 

Source: Google

What happened on Friday, 28th May 2021?

On Friday, 28th May 2021, Reliance Industries stock shot up by 6%. The rise was remarkable as there was no major news to act as catalyst. In our view, all the explanations that have been offered like decade high profitability in polymer business and upgrade by a brokerage firm are mere afterthoughts. From the news that is publicly available, there is nothing that can account for such a big rise in an almost USD 200 billion market cap company.

Figure 3: Stock price of Reliance Industries on 28th May 2021

Source: Google

The other interesting points to note about this move are: 

  • Volumes were 3-4x of recent averages 
  • For the first time in 2021, the stock went up by 6%
  • In 2020, there were 8 instances of 6% plus increase in stock price  
  • Almost all these increases were associated with big announcements of money coming into Jio and Retail

Table 1: Reliance Industries with more than 6% price increase in 2020 and 2021

Date

Price

Volumes at NSE

Change %

Mar 20, 2020

1,008.39

29.24M

10.92%

Mar 24, 2020

934.54

21.12M

6.71%

Mar 25, 2020

1,072.09

33.75M

14.72%

Mar 31, 2020

1,103.29

20.44M

8.08%

Apr 07, 2020

1,194.77

25.09M

11.94%

Apr 22, 2020

1,350.80

65.85M

10.20%

Aug 04, 2020

2,150.60

42.48M

7.05%

Sep 10, 2020

2,314.00

64.75M

7.06%

May 28, 2021

2,094.80

26.06M

6.01%

Note: These are NSE volumes.

Source: https://www.investing.com/equities/reliance-industries 

April 2020: Prior to the Facebook-Jio deal

April 2020: Prior to the Facebook-Jio deal

In the morning of 22nd April 2020, Reliance Industries Ltd. (the largest market cap company in India and almost 30% bigger than the nearest competitor) announced a deal with Facebook. Reliance announced that Facebook would invest 435.74 billion Indian rupees (USD 5.6 bn) in Jio Platforms for a 9.99% Stake. 

This was big news as it was also the largest Foreign Direct Investment (FDI) for any minority investment in India. Please refer EMAlpha insight Facebook-Jio Deal and Stock Price Movement in Reliance Industries Limited Immediately Before that (https://www.emalpha.com/facebook-jio-deal-and-stock-price-movement-in-reliance-industries-limited-immediately-before-that/) dated 4th May 2020. 

Coming on the heel of such eventful news, it was natural that the stock would react. Within days, the stock gained more than 20% from the lows of the week, an increase of more than USD 20 bn in value. And this came at a time when the market hadn’t moved much. But the more interesting part was what happened on 21st April 2020. It was the day when Reliance had touched the weekly low. The stock was under serious pressure during most of the trading session on 21st April 2020, just a day before the Facebook-Jio deal announcement.

 

Figure 4: Stock Price Chart for RELIANCE INDUSTRIES (RIL:IN) 

Source:BSE India

The stock price during the trading hours of 21st April 2020 was approximately as follows (all timings in IST and all prices in INR)

  1. 9:30am –  1,200
  2. 10:45 am –  1,201
  3. 12:30 pm –  1,180
  4. 13:10 pm –  1,171
  5. 3:00 pm     1,202
  6. 3:30 pm    1,236

In a matter of couple of hours, on 21st April 2020 before the close of the trading session, the stock gained more than 6%. It was clearly against the trend of the day. The performance looks even more startling considering that the market was down more than 3% that day. So, the relative performance looks even better than the absolute performance of Reliance Industries stock. When you look at the daily stock prices for that week, there is no doubt that Facebook deal had been the primary driver behind the rise. (All the prices are in INR)

  1. 20th April    1,244
  2. 21st April    1,236
  3. 22nd April –   1,363
  4. 23rd April –    1,371
  5. 24th April –    1,417

Is Reliance preparing something big and insiders are at play?

There are several possible inferences depending on how one wants to view the price movement on 21st April 2020 in Reliance Industries stock. There is one thing which we think is the most relevant and that is the sudden change in sentiment in the second half. A lot has happened in the last twelve months for Reliance Industries. Considering what happened on 21st April 2020, just immediately before the announcement of Facebook-Jio deal, the possibility of another big positive event can’t be ruled out after the significant stock price movement on Friday, 28th May 2021. The stock price movement on Monday, 31st May and in the upcoming week will indeed be very interesting.

How EMAlpha can help in such situations?

Reliance Industries is one of the most difficult companies for analysts and fund managers to comprehend. There are several important business verticals and too many moving parts. Hence, it is not difficult to justify either an optimistic or pessimistic outlook for the company and by extension, a bullish or bearish stance on the stock. But as we have highlighted, the Oil & Gas and Petrochemicals business usually don’t get much attention from investors and thus don’t lead to big moves. 

EMAlpha AI has repeatedly picked up the company for a number of reasons including fierce competition in the telecom sector, volatility in crude oil prices, the impact of fuel demand and its tussle with Amazon. It is an important and interesting company to keep track of because of its weight in the major Indian equity indices like SENSEX and NIFTY 50 and also it being among the Top 10 constituents of MSCI Emerging Markets Index (the only Indian company to feature in that list). 

EMAlpha can help in tracking these companies and especially in such situations:

  • The historical track record matters and the AI-ML based EMAlpha algorithms can help in the news flow analysis to better understand the blind spots. Anyone who has tracked Reliance Industries for long enough would understand that it is a complex company to analyse and the stock price drivers could arise from various aspects. 
  • Can the local news flow collection pick up issues earlier than the English media? Considering how vocal some of the institutional investors have been on Governance issues, it is evident that these issues matter. The local language along with English news analysis can be tracked for the companies experiencing sharp price movement and specific situations.
  • Can regular analysis of social media be used as an input before taking an investment decision? Many of these issues which may impact the stock price tend to appear very quickly on social media. It is here that EMAlpha’s analysis of unstructured data becomes a key tool for investors. The unstructured data analysis can also be used to assess the potential impact on some of the larger companies in a country where the activity levels are higher.

  

References:

  1. Mukesh Ambani convinced Facebook, Google, others to pump in $27 billion in Reliance; now he has to deliver https://www.financialexpress.com/industry/mukesh-ambani-convinced-facebook-google-others-to-pump-in-27-billion-in-reliance-now-he-has-to-deliver/2159612/ (Accessed on 29th May 2021)
  2. https://www.bseindia.com/xml-data/corpfiling/AttachHis/06bee64f-7dad-4b4c-b54b-ebc195078f95.pdf (Accessed on 29th May 2021)
  3. https://www.bseindia.com/stock-share-price/reliance-industries-ltd/reliance/500325/ (Accessed on 29th May 2021)
  4. What sparked a 6% rally in Reliance shares today? https://economictimes.indiatimes.com/markets/expert-view/what-sparked-a-6-rally-in-reliance-shares-today/articleshow/83032560.cms (Accessed on 29th May 2021)
  5. Why Reliance Industries share zoomed 6% today https://www.businesstoday.in/markets/company-stock/reliance-industries-share-rises-jefferies-petrochem-sensex-nifty/story/440270.html (Accessed on 29th May 2021)
  6. Reliance Industries’ stock surges about 6% amid expectations of higher petrochemicals business profitability https://www.livemint.com/companies/news/reliance-industries-stock-surges-about-6-amid-expectations-of-petchem-profits-11622190563931.html (Accessed on 29th May 2021)
  7. Facebook-Jio Deal and Stock Price Movement in Reliance Industries Limited Immediately Before that https://www.emalpha.com/facebook-jio-deal-and-stock-price-movement-in-reliance-industries-limited-immediately-before-that/ (Accessed on 29th May 2021)

EMAlpha Products and Services

In most Emerging Markets, information discovery is a major challenge. For example, even if global investors do show interest, how do they solve the problem of timely access to information? The world’s largest capital allocators hold USD 60 trillion and they include GPIF (Japan), GPF (Norway), ADIA (Abu Dhabi), GIC (Singapore) etc. However, only 10% of the capital gets allocated to EMs and ~90% goes to G10. The big hurdle for EMs is: Foreign investors cannot access relevant local information in a timely fashion.

Most market participants and investors from across the world realise that the low rates in G10 makes EM attractive for investors. But, a) Information access is usually a cost and time intensive process for investors, and b) In many EMs, language is a big barrier and because of multiple regional languages, there is a significant delay before news makes it to the mainstream English language. To address these issues, you need solutions like, a) Real time news collection from multiple languages and, b) Instantaneous machine translation and text analytics leading to actionable recommendations for investors.

There are further challenges such as ensuring that companies behave responsibly and that they adopt sustainable business practices. There is a need to ensure that the investors are contributing towards making the world a better place by making investment decisions which reward responsible behaviour of companies. Case in point, ESG (Environmental, Social & Governance) which is increasingly being used as a filter for investment decisions. There are other issues as well such as which data to use and a lack of a standardized framework for evaluation.

Some of these issues are too important to be postponed to a later date and it is in this regard that EMAlpha is making its contribution. EMAlpha has developed a Flexible ESG Framework Management System which is a proprietary technology that makes ESG scores framework agnostic, thus allowing for quick adaptation. In addition, the users decide what matters to them and the EMAlpha system does a classification into E, S, G and more granular categories.

EMAlpha also has solutions for Multilingual data collection and real time targeted information which are based on proprietary processes to collect relevant data across multiple markets. The coverage expands across emerging market equity, currencies and commodities and the work has also been very successful in testing the signals in some key markets for live trading strategies. This is a continuous cycle and a virtuous loop that allows for iterative improvement through AI-human feedback.

With developments in AI and technology in areas like NLP, there are considerable new possibilities to bridge the gap in information between Emerging Markets and the more Developed Markets. This is an area which is turning out to be very exciting because some of the tools mentioned were not available even a couple of years ago. This implies that the evolution in the field will only get faster as time goes on. While the Emerging Markets and the Capital Flow Conundrum is a complex one, there is now much more hope and optimism that with the usage of technology, things will only get better.

At EMAlpha, the ESG team is doing further research on why some issues like Social get more prominence as compared to others like Environmental or Governance issues. To look at specific cases in the context of ESG is a very intense yet interesting exercise and this has been an incredible learning experience for the EMAlpha Research team. The data, information and ratings are a humongous challenge for ESG and it takes time to reach to the depth of the issues as the field is evolving very quickly.

EMAlpha is making a solid contribution in tackling these challenges. EMAlpha has solutions for ESG which are practical, user friendly and although not too simplistic yet easy to use. EMAlpha has developed a Flexible ESG Framework Management System which is a proprietary technology that makes ESG scores framework agnostic, thus allowing for quick adaptation. In addition, the users decide what matters to them and the EMAlpha system does a classification into E, S, G and more granular categories.

We strongly believe that the entire ESG ecosystem requires multiple stakeholders to pull in the right direction in order to make it operational and that will be the most critically determining factor for ESG’s success in making the corporate responsibility actually work. Most importantly, the investors should view ‘E’, ‘S’ and ‘G’ individually and should not confound issues when it comes to the comprehensive ESG evaluation. It is important to understand the right reasons behind ESG investing because this bias could hurt their investment decision making and portfolio performance.

Research Team
EM Alpha LLC

For more EMAlpha Insights on Emerging Markets, please visit https://emalpha.com/insights/. To know how you can use EMAlpha’s unstructured data and ESG (Environmental, Social and Governance) solutions for better investment decisions, please email us at research@emalpha.com.

About EMAlpha:

EMAlpha, a data analytics and investment management firm focused on making Emerging Markets (EMs) more accessible to global investors and unlocking EM investing using machines. EMAlpha’s focus is on Unstructured Data as the EMs are particularly susceptible to swings in news flow driven investor sentiment. EMAlpha works on information discovery and ESG solutions for Investors in Emerging Markets, using AI and NLP tech. Our mission is: “To help increase capital flow, in terms of FDI and FPI, to Emerging Markets by lowering information barriers using AI/NLP”. EMAlpha Products help achieve both alpha and ESG solutions and the idea is to help asset allocators, asset managers, banks and hedge funds along with companies with cost and time efficient access to relevant information. We use thoroughly researched machine learning tools to track evolving sentiment specifically towards EMs and EMAlpha pays special attention to the timely measurement of news sentiment for investors as these markets can be finicky and sentiment can be capricious. Our team members have deep expertise in research and trading in multiple Emerging Markets and EMAlpha’s collaborative approach to combining machine learning tools with a fundamental approach help us understand these markets better.

Disclaimer:
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