Reliance Looking to Close at 3.5-Month Low! Should You Worry?

  • Stock Market Analysis

While the broader markets opened on a positive note, supported by every sector, some Nifty heavyweights have refused to sustain at upper levels, leading to a fall from the day’s high in the Nifty 50 as well. By 2:21 PM IST, the benchmark index fell around 67 points from the day’s high and currently trading at 16,075.

The elephant in the room, Reliance Industries (NS: RELI ) has been the biggest drag on the index. The selling in this counter has been continuing since the government slapped oil producers with a windfall tax of INR 23,250 per tonne on domestic oil production. Although the stock closed positive in the next two sessions after a massive cut of 7.2% on 1 July 2022, it seemed to be just a small counter-trend rally as selling resumed after a minor hiccup in the downtrend.

Image Description: Daily chart of Reliance Industries showing 2 support levels

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Reliance is the highest weighted stock in the Nifty 50 index, accounting for approximately 11.81% of the index alone. A fall in the share price of Reliance is not a good sign for Nifty and a further fall in the counter would also drag Nifty back to the support level of around 16,000.

Reliance shares are down over 1.34% to INR 2,379 and are looking to close at the lowest level since 15 March 2022. Although there is decent support around INR 2,350 - INR 2,370 which is just below the current price, the selling pressure despite a positive market is raising concerns. Had there been selling across the sectors, a fall in the shares of Reliance would not have been much of a concern. 

If Reliance shares close below the above-mentioned support zone, there could be deep trouble for both the counter and the broader market index Nifty 50. If the index has to sustain at higher levels, the support of Reliance is critical. Below this support zone, the next major support seems to be around INR 2,200, meaning a break below the current support would open the gate for a more downside potential of around INR 150. 

Reliance is not only slapped with the windfall tax that is denting investors’ sentiments, but also an increased excise duty on exports. The government has increased INR 6 on petrol, INR 13 on diesel, and INR 6 on ATF per litre of export. An easing of oil prices in the last few days to below US$101 per barrel has also reduced the profit margins on domestically produced oil. All these factors combined are making investors flee away from the shares of Reliance.

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