Will Reliance Under Perform The Market?

According to the finance ministry-prepared latest Economic Survey, Reliance Industries’ KG-D6 fields have seen nearly 22 per cent fall in production this fiscal. Gas production from KG-D6 fields during April-December 2011-12 was about 12.36 billion cubic meters against the production of 15.82 BCM during the same period in 2010-11. Reliance had been witnessing a continuous fall in production from the D6 block for the last seven quarters.

3Q FY12 profit of Reliance Industries (RIL) was down 14% YoY and 22% QoQ hit mainly by fall in refining margins (GRM). GRM is the difference in dollars per barrel between its product revenue (sum of barrels of each product multiplied by the price of each product) and the cost of raw materials. For example, if a refinery gets $100/bbl from the sale of the refined products from a barrel of crude oil that costs $80/bbl, then the GRM is $20/bbl.

And if British oil and gas giant BP Plc is to be believed, the reserves in the much-touted D6 gas repository of its partner Reliance Industries (RIL) are just 1.4 trillion cubic feet (tcf), five times lower than what Niko Resources, RIL’s other ally, estimates!!

Will Reliance Underperform The Market?

Let’s discuss Reliance trading strategies and technical analysis.

The Reliance technical chart shows the under-performance for quite some time. Clearly 200 day moving average has acted as a stiff resistance since last 1 year and only in the recent rally since 1st January, 2012 it has breached it and made a high of around 865. But since then, it has been playing with it. In fact, in last 6months Reliance Industries has under performed Nifty by at least 25%.

For any kind of bullish scenario, Reliance has to break the 200 day moving average above 818 on the closing basis. One can then initiate long position for a target of 850-865 with a strict stop loss of 796 on a closing basis which is the 38.2% Fibonacci retracement of the move from lows of January, 2012 to the highs of February, 2012.

But currently, Reliance is also moving in an ascending triangle and finding it difficult to break on the upside as the falling trend line is acting as a stiff resistance. Also, there is a bullish gap to be filled between 745 and 760. With the reading of % William range below -50, the momentum indicates a downward risk. Go short if it breaks 775 on the downside which is the 50% Fibonacci level, for a target of around 745 with a strict stop loss of 796.

In fact, the region of 745-750 may provide support because of the ongoing strong market conditions and share buyback. So, one can start buying in small quantities from 745 till 760.

Now it’s your turn…..

Feel free to share your experience and thoughts in the comments area.

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