Published on: December 27, 2023
Reliance Industries Limited, with a staggering market capitalisation of Rs. 17.50 trillion in the Indian stock market, has long been underperforming the broader market indices. However, recent stock performance trends have labelled it the elephant in the room within the context of the Nifty’s rally.
Reliance Industries carries a substantial weight of over 9.11% in the Nifty50 index, yet it has been underperforming the broader index since June 2022. This underperformance has not gone unnoticed, and market participants increasingly view Reliance as an investment that fails to keep pace with the broader market.
The phrase “the elephant in the room” is apt here, suggesting traders and investors consciously avoid discussing the stock’s underperformance against the Nifty. However, this avoidance may be rooted in a broader trend where market participants seek lucrative opportunities in Midcaps and Smallcaps, perceiving them as potential money-making ventures compared to the giant Reliance.
A closer look at the Reliance Industries weekly chart reveals a compelling narrative.
I deliberately chose the metaphorical title “elephant in the room” as it gains significance when one observes Reliance Industries trading within a range since October 2021. While the stock has intermittently reached new highs, it consistently loses momentum at these peaks.
The question that looms large is whether a breakout beyond this range’s upper band at Rs.2,621 would alter Reliance’s performance’s historical trajectory. Market sentiment, especially in recent weeks, suggests a convincing rally for Reliance. However, historical data reveals a lack of confidence in sustained bullish momentum.
Reliance’s substantial weight of approximately 58% in the Nifty Energy index is an interesting aspect to consider. Paradoxically, despite this, there’s a noticeable underperformance when examining the ratio chart of Reliance/Nifty Energy.
Let us analyse the relative performance of Reliance against the broader energy sector represented by Nifty Energy in the ratio chart below.
The ratio chart signals an evident underperformance of Reliance Industries against Nifty Energy, with a breakdown visible in the trading range. This breakdown implies that the trend of Reliance underperformance might persist.
Furthermore, the ratio currently trades at 2019 levels, signalling a prolonged period of underperformance. Adding to the concerns is a death cross in the moving average, indicating a potential time to steer clear of Reliance Industries.
If you are using TradePoint and analysing the Point & Figure (P&F) charts, there have been series of bearish followup in the form of double bottom sell on the 0.5% X 3 chart.
While Reliance Industries is on the verge of a breakout on its price chart, the simultaneous breakdown on the ratio chart raises crucial questions about the sustainability of any potential rally. The comparison of these two charts underscores the complexity of analysing Reliance’s current market dynamics.
The metaphorical elephant in the room, Reliance Industries, cannot be ignored for much longer. Despite its historical significance in the Indian stock market, the recent underperformance against the Nifty and the ratio chart’s signals a closer look. Investors and traders are now challenged to decide whether the elephant is ready to charge ahead or if its underperformance will continue to be a lingering concern in market discussions.
Are you interested in buying Reliance Industries or sticking to the Midcaps and Smallcaps stocks?