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Analysts cautious on RIL as stock hits new high; m-cap nears Rs 10 trillion

Continuing its upswing, Reliance Industries (RIL) on Wednesday hit a fresh lifetime high of Rs 1,571 apiece on the BSE, up 4 per cent, thus nearing Rs 10 trillion market capitalisation (m-cap). On Tuesday, RIL became the first Indian company to cross the m-cap of Rs 9.50 trillion. 

At 09:31 am, the stock was trading over 3 per cent higher at Rs 1,558.40 apiece on the BSE as compared to 0.43 per cent rise in the S&P BSE Sensex. The m-cap of the company stood at Rs 9.91 trillion. 

On October 18, RIL had become the first company to cross the m-cap of Rs 9 trillion. Thus far in the calendar year 2019 (CY19), the stock price of RIL has rallied 35 per cent, as compared to 10 per cent rise in the Nifty50 index. The company’s market-cap has surged by Rs 2.3 trillion thus far in CY19.

Global brokerage firm Morgan Stanley has maintained 'overweight' rating on the stock. It noted that most of the factors considered in bull case price target of Rs 2,000 such as higher telecom tariffs, monetisation of telecom ecosystem, higher gross refining margin (GRM), and recovery in petrochmeical cycle are coming into play. 

The brokerage added that rising clarity on debt reduction should help earnings multiples of the company. It has set the target price of Rs 1,469. 

Credit Suisse, on the other hand, has maintained 'neutral' outlook on the stock but raised its target price to Rs 1,400 from Rs 1,210 earlier. It said that Reliance Jio's tariff increase could bring annual cash flow of over $1.5 billion.

On Tuesday, Relaince Jio, the telecom arm of the company, said it will also increase tariffs in next few weeks. 

"Like other operators, we will also work with the Government and comply with the regulatory regime to strengthen the industry to benefit Indian consumers and take measures including appropriate increase in tariffs in next few weeks in a manner that does not adversely impact data consumption or growth in digital adoption and sustains investments," the statement added. 

Should you 'sell' the stock?

Given the stock has rallied too far too soon, there is not much upside seen in the stock and investors should now be cautious as the all the positives have been factored in, say analysts. 

For any stock to witness a next leg of rally, it needs to consolidate first. As regards RIL, the rally in the stock has been sharp, swift and that too in a short period of time. Hence, one should be cautious of entering the stock at these levels, explains Arun Kejriwal, founder at Kejriwal Research & Investment Services. 

Asked whether the existing investors should hold or sell the stock, the analyst said there is no hurry to sell the stock now. "Wait for some signs where you get uncomfortable with the share price movement and then sell," Kejriwal added. 

Ambareesh Baliga, an independent market expert, too feels that one should be cautious at these levels. "The stock has already taken into account all the positives such as refining margin, petrochemical margin, retail as well as now telecom - due to expected hike in tariffs. Divestment has also been facored in. So, if any of these factors goes wrong, there is a possibility of downside whereas on the upside, the stock may not rise much because it has already rallied too much," Baliga added.