Understanding the Recent Reliance Share Price Drop
On November 1, 2020, the Reliance share price experienced a significant drop, prompting a flurry of opinions from 'experts' on platforms like Quora. Many suggested various reasons such as poor Q2 results, revenue dip, oil gas business performance, health rumors, and legal issues.
Factors Behind the Drop
The stock price fell 8 percent in a single day due to several key factors:
1. Q2 Earnings and Revenue
The 15% year-over-year drop in profit in the September quarter was a significant setback. Additionally, Macquarie, a foreign brokerage, downgraded its target price to 1320, a 42% reduction.
2. Future Group Legal Case
A highly contentious court case between Reliance and Amazon over the acquisition of Future Group is another factor affecting the share price. Despite high chances of a positive outcome for Reliance, this legal uncertainty impacts investor sentiment.
3. Market Correction
Over the past 4-5 months, the Reliance stock price increased significantly, leading to profit-taking as bulls exited their long positions. This is a common phenomenon in stock markets, where extended upward or downward trends eventually face a correction.
Retrenchment and Future Outlook
As of November 6, 2020, the stock price had recovered to Rs.2029, up from the Rs.1854 mark on November 3. It's crucial for retail investors to rely on their instincts and conduct thorough research before making any investment decisions. Market forecasting is inherently risky, so sticking to personal judgment is advisable.
3 Major Reasons for the Drop
1. Court Case Between Reliance and Amazon and Future Group: The ongoing legal battle over the acquisition of Future Group has significantly impacted the share price, despite a high probability of a favorable outcome for Reliance.
2. Weak Q2 Results: Poor performance in the Q2 results led to a decline in investor confidence, as market expectations were not met.
3. Profit-Taking and Market Correction: In a period where the stock price had been rising steadily, the market corrected, leading to a drop in share price.
Buying Opportunity
From a retail investor's perspective, the stock price being corrected by almost 19% from its peak of 2305 is a strong buying opportunity. At 1877-1850, Reliance appears to be a fantastic investment. The company has attracted foreign investments and is using these funds for expansion and diversification. It is also planning to test 5G technology with Qualcomm and is developing a 5G phone under Rs. 5000.
Personally, I have allocated 40% of my funds into Reliance at various prices, but I advise against investing all your funds in any single stock. It's wise to keep no more than 20% of your available funds in any single investment.
Disclaimer
All the stocks discussed and content published here are for educational purposes only. Conduct your own research before making any investment decisions. Happy Investing!
Instagram: YashUtpatn
Twitter: YashUtpatn