Why Are Brokerages Cautious on Reliance Despite Long-Term Energy and AI Catalysts?
About Reliance Industries and the Current Debate
Reliance Industries Limited is India’s most diversified corporate group, spanning energy, petrochemicals, telecom, retail, digital platforms, and new energy initiatives. Over the past decade, the company has transitioned from a traditional refining-led conglomerate to a consumer and technology-driven enterprise.
However, the latest round of brokerage commentary highlights a growing divergence between long-term structural optimism and near-term execution concerns, particularly within the retail business.
Recent quarterly performance has triggered a reassessment of earnings quality, cost structures, and growth visibility. While most global brokerages continue to maintain positive long-term ratings, the tone has turned more cautious as retail growth momentum shows signs of fatigue.
Morgan Stanley View: In Line Results but Weak Quality
Morgan Stanley has maintained an Overweight rating on Reliance with a target price of ₹1,847. However, its commentary reflects discomfort with earnings quality rather than headline numbers.
The brokerage flagged weak earnings quality, especially within the retail segment, describing the quarter as a “clearing event” where negatives are largely priced in.
According to Morgan Stanley, the retail business delivered weaker top-line growth, while consolidated unallocated costs rose, dragging overall quality.
Despite these concerns, Morgan Stanley remains constructive on Reliance’s strategic pillars. It continues to see strong execution potential in new energy initiatives and refining operations, which it believes can offset volatility in retail growth over time.
Morgan Stanley: What Is Working and What Is Not
Positives highlighted include robust refining margins, progress in new energy execution, and stability in digital and upstream oil segments.
Negatives include slower retail revenue growth, rising unallocated corporate expenses, and uneven profitability across consumer-facing businesses.
The brokerage believes that while quarterly volatility may persist, long-term catalysts in energy transition and artificial intelligence provide structural support.
The key takeaway from Morgan Stanley is that the stock may be fairly valued in the near term, but downside risks appear limited if execution in core energy and technology initiatives remains on track.
Jefferies View: Retail Hiccup and Cost Pressure
Jefferies has maintained a Buy rating on Reliance but reduced its target price to ₹1,795 from ₹1,830, citing softer-than-expected December quarter performance.
The brokerage noted that consolidated EBITDA came in below expectations, primarily due to weaker retail performance and a sharp rise in unallocable expenses.
Retail EBITDA growth slowed to low single digits, impacted by higher promotional intensity and aggressive competitive behavior.
Jefferies emphasized that core retail growth has decelerated meaningfully, raising questions about the pace at which Reliance can scale profitability in this segment.
Jefferies: Key Catalysts to Watch
Jefferies remains constructive on Jio, noting that revenue and EBITDA were largely in line with expectations.
However, it flagged that Jio’s next leg of value creation may depend on regulatory clarity, including government approval of new IPO rules.
The brokerage sees a revival in retail growth and tariff hikes in Jio as critical catalysts for a meaningful rerating.
While oil-to-chemicals performance was in line and refining outlook remains constructive, Jefferies believes the stock may remain range-bound until retail growth regains momentum.
Market participants navigating such mixed global and domestic signals often track index positioning through Nifty Tip before aligning sectoral exposure using BankNifty Tip during periods of earnings-driven volatility.
Macquarie View: Retail Softness Adds Downside Risk
Macquarie has maintained an Outperform rating on Reliance with a target price of ₹1,650, but its tone is notably more cautious.
The brokerage highlighted lacklustre retail performance and higher losses in the “Others” segment as key drags on consolidated results.
It warned that December quarter performance adds downside risk to Reliance’s ambitious retail revenue targets.
Macquarie specifically questioned the feasibility of doubling retail revenues over four years, given recent growth trends and margin pressures.
Consensus Risk: EPS Growth Expectations
Macquarie sees downside risk to consensus forecasts of approximately 15 percent group earnings growth.
The brokerage believes execution risks in retail and cost discipline will determine whether Reliance can meet medium-term profit targets.
Despite this, it continues to value the company’s diversified business model and balance sheet strength.
The divergence between brokerages reflects a broader market debate: whether Reliance’s future valuation should be driven by consumer scale or by its legacy strength in energy and emerging bets in AI and new energy.
How Investors Should Interpret These Views
Short-term investors may focus on retail execution and cost control, as these will influence near-term earnings surprises.
Long-term investors may look past quarterly noise and focus on structural themes such as energy transition, digital ecosystems, and balance sheet resilience.
Reliance’s diversified model cushions downside risk but also complicates valuation.
The key is to distinguish between cyclical softness and structural impairment. Most brokerages agree that retail weakness is cyclical, but the duration of this phase remains uncertain.
Investor Takeaway: Derivative Pro & Nifty Expert Gulshan Khera, CFP®, notes that Reliance is at a strategic crossroads where legacy strength in energy and emerging bets in AI and new energy are offsetting short-term pressure in retail. For investors, patience and discipline are essential, as valuation comfort may come more from structural optionality than near-term earnings acceleration. Read detailed market perspectives at Indian-Share-Tips.com, which is a SEBI Registered Advisory Services.
Related Queries on Reliance Industries
Why is Reliance retail growth slowing?
How important is new energy for Reliance valuation?
Can Jio tariff hikes drive earnings recovery?
Are unallocated costs a structural concern?
How should investors value conglomerates like Reliance?
SEBI Disclaimer: The information provided in this post is for informational purposes only and should not be construed as investment advice. Readers must perform their own due diligence and consult a registered investment advisor before making any investment decisions. The views expressed are general in nature and may not suit individual investment objectives or financial situations.
