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Shares of Reliance Industries (RIL) continued to languish at fifth position in the list of most actively traded securities for the second consecutive year as series of rating and earnings downgrades — due to declining gas output — diverted investors’ attention to more lucrative frontline stocks in banking and technology space.
The total market turnover in RIL stock dropped to Rs 75,817.60 crore at the end of 2013, down 3.1% from 2012 (Rs 78,246.75 crore). The value of shares traded in the energy giant has dropped almost 73% from the peak turnover of Rs 2.8 lakh crore in CY08, show Bloomberg data. Data also show RIL’s stock has given returns of less than 4% in last one year, compared with near 9% gain seen in the Sensex.
State Bank of India (SBI) topped the list of most active scrips in 2013 with a total market turnover of Rs 1.22 lakh crore, followed by ICICI Bank (Rs 1.04 lakh crore), Infosys (Rs 93,236 crore) and Axis Bank (Rs 84,898 crore).
Analysts, who track the oil and gas industry, said RIL shares were dented by rating downgrades by several brokerages between January and December 2012, due to declining gas production in KG D6 basin and the tussle with the government over gas pricing.
Units D1 and D3, which started production from Q1 FY10, are the two most prolific fields in the D6 block which were together expected to produce 80 mmscmd by the first quarter of FY12. In the first quarter of operations, the output averaged at 19 mmscmd against a target of 20 mmscmd.
While the two fields were not able to meet their given target for each quarter, RIL kept on increasing its production consistently till the fourth quarter of 2010 when it produced 59 mmscmd of gas which coincided with its target too for the same quarter.
“Markets had high expectations from KG basin gas fields. However, gas output from KG-D6 block has been continuously falling, and many prospective E&P blocks have been relinquished due to non-viable quantity of hydrocarbon find. The E&P business has underperformed the market expectation and that prompted brokerages to downgrade the stock,” said Gagan Dixit, oil and gas analyst, Quant Broking.
Several brokerages like Kotak Institutional Equities, India Infoline, Citigroup, HSBC, Morgan Stanley, Goldman Sachs, Deutsche among others had downgraded RIL’s stock during the period.
Analysts, however, pointed out the outperformance of the banking and IT business that dethroned RIL from top spot. For instance, the overall business growth of Indian banks remained healthy in the previous two-three years even as asset quality of banks, especially state-owned banks, suffered a blow. “It is true, the stock has remained in a narrow range due to the decline in natural gas output. However, it is not about Reliance, it is a wider base that has gained and other stocks that have performed well,” said a Mumbai-based analyst with a British multinational banking and financial services company.
A separate set of data show a number of foreign institutional investors (FIIs) were on the decline over the past two years. According to shareholding numbers, the number of FIIs had dropped to 1,085 in March 2013 from a record 1,276 in March 2011, even as overall stake of FIIs rose marginally.