After staying invested in Reliance Industries -- India’s most valuable company for a good near 10 years -- investors have managed to come back to just about where they were a decade ago.
Reliance Industries shares are on fire, helped by rapid expansion of Jio telecom venture and peaking capex cycle in petrochemicals and refineries business. The stock has returned a handsome 48% gain since the beginning of this year 2017, beating both the equity benchmarks Sensex and Nifty, which have risen 21% and 22%, respectively.
Over the last one year, Reliance Industries shares have gained an envious over 1% in every seven days, rising by 56% in 52 weeks. This week, shares of the Mukesh Ambani-controlled company are trading at near their all-time high levels of about Rs 1,625, a price that was last seen over nine-and-a-half years ago in January 2008. Reliance Industries shares ended at Rs 1,621.15 on Wednesday. By contrast, it saw an intra-day high of Rs 1,649 and previous closing high of Rs 1,610 in January 2008.
How much longer?
But that’s where the shock and awe must end. For all the fund managers and equity experts appearing on television and imparting their invaluable wisdom about investing for long term and investing in good quality companies, Reliance Industries stock may be a head-scratcher, as its share price return in those nine-and-a-half years is zero!
After staying invested in India’s most valuable company for a good near 10 years, investors have managed to come back to just about where they were a decade ago. Their capital appreciation in this period is nil, with the only returns coming from paltry dividends declared in the meanwhile. Reliance Industries, one of the top blue-chip firms in India, easily qualifies for a ‘good quality’ company, and 10 years is ‘long’ enough investment period.
Where are the returns?
The culprit in such cases is the sharp falls during this investment holding period. In the case of Reliance Industries, such a sharp fall was seen in 2008 — the year of the financial crisis — when its share price fell to one-third between January and December. Although, since then, RIL’s share price has clawed back to its pre-crisis all-time high levels in just over eight years at a decent CAGR (compounded annual growth rate) of over 12%.
During this nine-year period, Reliance Industries has given 10 dividends aggregating to Rs 99.5 on the share of Rs 10 face value. However, other than the really early shareholders, it might not be of much significance to most others, for whom the share purchase price was considerably higher. In between, the company also issued a bonus share in the ratio of 1:1 in October 2009. The share prices mentioned in this article are adjusted for that bonus issue.
Fresh ray of hope?
Of late, Reliance Industries shares have shown an unprecedented buoyancy, with a massive jump in late February on the prospects of fresh cash flows from the company’s telecom business. Mukesh Ambani had announced that Reliance Jio has acquired over a 100 million subscribers in just less than six months of the launch of services, and had said that the company would start paid services in April.
Shares saw another spike in late March as the date of the start of paid services on Jio network drew closer, and a yet another spurt in July on the anticipated launch of a low-cost 4G mobile phone handset. The company’s shares are also trading firm on the prospects of fresh incomes from its petrochemicals and refining business’ under-commissioning facilities, on which the company’s 1.3 lakh crore investments are drawing to a close.