Reliance stock price drops 50% on trading apps today. Here’s the reason why

Revised and Improved Version: Reliance Industries Ltd (RIL) shares opened at ₹1,338 on the Bombay Stock Exchange (BSE) on Monday, causing significant confusion among investors as the price appeared to have dropped sharply by 49.61% compared to Friday’s closing price of ₹2,655.45. This apparent steep decline in the stock price sparked concerns, particularly among retail investors using trading platforms, who were unsure whether this reflected an actual loss in the company’s market value. However, this dramatic reduction was not indicative of a market downturn or a loss of investor confidence. Instead, it was the result of the company’s recently announced bonus share issue, a routine corporate action that adjusts the share price while preserving the company’s total market capitalization.

RIL recently declared a 1:1 bonus issue, which means shareholders would receive one additional share for every share they already hold in the company. This move significantly increased the number of outstanding shares in the market, necessitating a recalibration of the stock price to ensure the overall market value of the company remains unchanged. Despite the apparent drop in share price, the adjusted valuation actually reflected a slight increase, with RIL shares showing a 0.77% rise on Monday when viewed on an adjusted basis. This underscores that the bonus issue merely redistributed the value of the shares across a larger number of units rather than diminishing the actual worth of the company or its stock.

Bonus issues like this enhance market liquidity and make shares more affordable for retail investors without impacting the company’s intrinsic value. This is RIL’s sixth bonus issue, the largest of its kind in India. Since its previous bonus issue in 2017, RIL shares have delivered a remarkable 266% return, rising from ₹725.65 in September 2017 to ₹2,655.45 last Friday. This growth underscores the company’s robust performance and ability to generate long-term value for its shareholders.

RIL has a history of issuing bonus shares, including a 1:1 bonus in 2009 and earlier ones in varying ratios, such as 6:10 in 1983 and 3:5 in 1980. In addition to these, the company has conducted five rights issues, the most recent being in May 2020. RIL also recently restructured its business, demerging Jio Financial Services Ltd in July 2023, further showcasing its strategic approach to growth.

Analysts remain cautiously optimistic about RIL’s stock. While traditional segments like refining and petrochemicals might experience slower growth, emerging areas such as telecom and retail hold significant potential. For instance, Jio’s Average Revenue Per User (ARPU) rose by 7% quarter-on-quarter to ₹195, and further growth is expected following recent tariff hikes. The retail segment continues to perform steadily, contributing to the company’s diversified revenue streams.

In addition, RIL is committing ₹75,000 crore to its new energy business. Although immediate returns from this venture are not reflected in current estimates, analysts anticipate a positive impact on the company’s long-term growth once more details about its green energy initiatives emerge. This commitment aligns with broader market trends toward sustainability and reinforces RIL’s strategic focus on renewable energy.

According to JM Financial, RIL plans to expand revenue from Jio and retail over the next three to four years. Its efforts in green energy and tariff adjustments are expected to strengthen its competitive position and align with its vision of sustainable growth.

Over the past month, RIL’s share price has declined by around 10%. However, it remains up 2.53% year-to-date, compared to a 9.87% rise in the BSE Sensex over the same period. Despite recent fluctuations, RIL’s diversified investments across telecom, retail, and green energy highlight its resilience and potential for continued long-term growth.

The recalibration of RIL’s share price following the bonus issue is a routine adjustment. By increasing the total number of shares, the move not only makes the stock more accessible to retail investors but also enhances liquidity, broadening the company’s investor base and reinforcing its market position.

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