While the benchmark stock indices plunge to multi-month lows due to fears over China's turbulent markets, Reliance Industries Ltd (RIL) shares hit an 18-month high on the bourses, supported by improving prospects for the company in 2016.
The stock price of RIL ended 2.7% higher at Rs 1,052 on the Bombay Stock Exchange (BSE) on Monday, reaching its highest levels since 24 June, 2014.
Overall, the stock gained 6% in the past one week compared to a 3% decline in the benchmark indices. The BSE S&P Sensex closed at a 19-month low of 24,825 points.
Analysts attribute the rally in RIL to its positive earnings growth outlook on the back of improvement in its gross refining margins (GRM).
"We expect RIL to earn a premium of around $3 per barrel over the Singapore GRM taking the Q3FY2016 GRM to $11 per barrel from $10.6 per barrel in Q2FY2016. The capacity addition in the high-margin petrochemical business would further boost the profitability," Business Standard quoted brokerage Sharekhan as saying in a Q3FY2016 earnings preview.
Another brokerage, CLSA, expects RIL's earnings before interest, tax, depreciation and amortisation (Ebitda) to increase 50% in the next two years.
CLSA maintains a "strong buy" on RIL as the Mukesh Ambani-led business conglomerate is set to commission projects worth $30 billion in 2016.
RIL had announced to $55 billion till 2018 to expand capacity in petrochemicals, refining and launch its telecom arm Reliance Jio. Reliance Jio is expected to roll out its 4G services in the next fiscal year. Last month, Reliance Jio had launched its services initially for the group's employees.
CLSA expects the market capitalisation of RIL to go up 25% from current level if its telecom arm manages to acquire 10 crore subscribers in the first year of its launch, reported The Economic Times.
Foreign Institutional Investors (FIIs), who have stayed away from the stock for the past few years due to its high capital expenditure and investment in the telecom business, are expected to increase their exposure to it.
"Reliance Industries is our top pick in the oil and gas space and the main reasons for it is a fact that the two large projects commencing operations in the next fiscal — the gas cracker and the petro gasification — have the potential to double the earnings before interest, taxes, depreciation and amortisation (EBITDA) of their core business of petrochemicals and refining in the next three to four years. Along with it, the retail business is doing well," Prayesh Jain, AVP - Research at IIFL, told CNBC-TV18.