RELIANCE INDUSTRIES Trading Buy Target 840.

RELIANCE INDUSTRIES Trading Buy Target 840.

Ø Reliance Industries (RIL), after disappointment on the Q3 results on the back of margin pressure on its core business Refining and Petchem, RIL facing another major concern on its gas production from KG basin. Reliance Industries (RIL) has underperformed benchmarks, further extending its last four years of underperformance since 2007. This period has coincided with fall in the profitability of all its core businesses and the recent underperformance is despite a very large buyback announcement.

Ø For the last couple weeks Reliance was in a very tight trading range. We feel the major concern for the stock is priced in and the near term trend would be reversed from short term downtrend. According to us, RSI oscillator on daily chart is also on rising mode that makes upside momentum reliable and signaled a buy on the positive MACD crossover. (see the chart Attached)

Ø Looking at the futures activity in Reliance current Futures Open Interest is 12mln shares i.e. almost at 6months low indicating no leverage position in the stock. Since March expiry the stock has risen by 2.45% and witnessed a Reduction in OI of 6.5% indicating Short covering in the stock.

Ø We expect the buyback (RIL’s 2012 share buyback announcement of INR104b: 120m shares; 3.7% of outstanding equity and 7% of free float) to act as a support to valuations in the near term. The stock had underperformed the Index throughout 2004 in the midst of differences between the Ambani brothers. On 27 December 2004, the company announced a share buyback of INR30b (actual buyback was just INR1.5b) to "ensure a positive impact on the stock price thereby contributing towards maximization of overall shareholder value". The stock price had den multiplied 8x from INR200 to INR1,600 in January 2008.

Ø Adding a fundamental rational behind the buy with KG-D6 output hitting an all- time low, Reliance Industries and its British partner BP plc have submitted to the government a revised field development plan for enhancing gas production from MA field in the block. RIL-BP propose to drill one gas production well on the MA oilfield in the eastern offshore KG-DWN-98/3 or KG-D6 block besides intervention jobs in at least two of the existing six wells on the fields which can be a force driving the stock forward from here on.

Ø Considering all the above factors we would suggest going Long On RELIANCE at CMP:745 with short term Target Of 840 (13% Upside)