Why Reliance shares are showing 50% fall on trading apps today

RIL shares opened at Rs 1,338, which appeared to be 49.61% lower than Friday's closing price of Rs 2,655.45 on the Bombay Stock Exchange (BSE).

Shares of Reliance Industries Ltd (RIL) saw an apparent fall of nearly 50%, confusing many investors on trading apps on Monday. However, this drop is not an indication of a market loss but is due to the company’s latest bonus share issue.

On the Bombay Stock Exchange (BSE), RIL shares opened at Rs 1,338, which appeared to be 49.61% lower than Friday’s closing price of Rs 2,655.45. In reality, on an adjusted basis, the share price actually increased by 0.77% on Monday.

Reliance announced a bonus issue in the ratio of 1:1, meaning existing shareholders will receive an additional share for every one they already own. As a result, the stock price has been adjusted to reflect this change. Bonus issues raise the total number of a company’s outstanding shares, making each share less valuable on paper while increasing market liquidity. However, bonus shares do not alter the company’s overall market value.

This is the sixth bonus issue for RIL, making it the largest of its kind in India. Since its last bonus issue in 2017, RIL shares have shown a growth of 266%. The company’s stock closed at Rs 2,655.45 on Friday, marking a substantial rise from its September 2017 price of Rs 725.65. This growth reflects RIL’s strength and its ability to continue generating value for its shareholders.

Previously, Reliance announced a 1:1 bonus issue in 2009, with similar issues in 1997. Earlier bonus shares were issued at varying ratios, including a 6:10 issue in 1983 and a 3:5 in 1980. In addition to these bonus shares, RIL has also completed five rights issues, with the most recent one being in May 2020. The company demerged Jio Financial Services Ltd in July 2023, further demonstrating its focus on reshaping its business structure.

Analysts are generally positive to neutral about RIL’s stock, noting that while some segments like refining and petrochemicals may see slower growth, other areas like telecom and retail show potential. According to PL Capital Institutional Equities, Jio’s Average Revenue Per User (ARPU) increased by 7% quarter-on-quarter, reaching Rs 195, with the potential for further growth in the coming months due to a recent tariff hike. The retail segment is also expected to maintain its steady performance.

RIL is investing Rs 75,000 crore in its new energy business, although current estimates do not yet reflect potential returns from this venture. Analysts suggest that as the company provides more details on its green energy efforts, this will positively impact its long-term growth outlook.

JM Financial mentions that that RIL plans to expand its revenue through Jio and retail over the next three to four years. The company’s proactive stance on green energy and its recent tariff changes are likely to help strengthen its market position. RIL’s commitment to its green energy initiatives aligns with broader market trends, as it works toward achieving a more sustainable growth model.

The adjustment in RIL’s share price is routine in the case of bonus issues. As the additional shares increase the company’s outstanding share count, the individual share price is recalibrated, making the stock more accessible to retail investors. This has implications for RIL’s share liquidity in the market, as smaller investors can now more easily invest in the stock, broadening its investor base.

In the past month, RIL shares fell by around 10%, though they are up by 2.53% year-to-date, compared with a 9.87% increase in the BSE Sensex during the same period. Despite recent dips, RIL’s overall performance reflects its strength in the long term, backed by its diversified investments in telecom, retail, and green energy.