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Reliance sets Indian stock market record despite slowing economy

Mukesh Ambani's group crosses 10tn rupee line as Sensex hits all-time high

Mukesh Ambani's Reliance Industries has become the 14th-most valuable listed company in Asia.   © Reuters

MUMBAI -- Billionaire Mukesh Ambani's conglomerate Reliance Industries on Thursday became the first Indian company to reach a market capitalization of 10 trillion rupees ($140 billion), ahead of data expected to show a deep slowdown in Asia's third-largest economy

The feat by Reliance Industries, which spans oil, chemicals, telecommunications and retail, suggests the country's most valuable company is weathering the slump.

Its market cap hit the 10 trillion rupee mark in early trading, making the company the 14th-most valuable in Asia. The BSE Sensex touched a record high of 40,000, also defying the concerns over the slowing economy.

The top gainers in the Sensex were Yes Bank, Tata Steel, construction group Larsen & Toubro, wireless carrier Bharti Airtel, ICICI Bank and State Bank of India.

Reliance Industries' shares have climbed more than 40% year to date, helped by the company's promise to become debt-free in 18 months and its move to sell stakes in some oil assets to Saudi Aramco.

Wireless unit Reliance Jio Infocomm, which disrupted the telecom sector with free and ultralow-cost service, also recently imposed fees on voice calls, which is expected to bring in incremental revenue. The company took less than a month to move from 9 trillion rupees to 10 trillion rupees in market capitalization.

Deven Choksey, managing director at KRChoksey Investment Managers, attributes the rally is mainly to the company's prospects in consumer-facing businesses.

By 2021, on a quarterly basis, "Reliance Jio's and Retail's profits are expected to surpass the profits from the core [oil and gas] business," he said. Reliance "is monetizing its assets. It is growing in size, faster than what it as grown in the last 10 years. I will not be surprised if it reaches 15 trillion rupees in less than 2 years."

In October, Reliance Industries announced it would invest $24 billion in creating a debt-free digital services company, which will, in turn, buy its stake worth $650 billion rupees in subsidiary Reliance Jio Infocomm.

The company had reported an 18.3% rise in consolidated net profit to 112.62 billion rupees during the September quarter, while its net revenue was higher by 4.8% at 1.64 trillion rupees.

Market watchers are also expecting Reliance Industries to participate in the bid for acquiring government-owned Bharat Petroleum. According to Nomura, Reliance Industries will gain an additional 34 million barrels in refining capacity if it acquires Bharat Petroleum, besides gaining 25% share in oil marketing.

The Bharat Petroleum divestment is part of the government's plan to raise 1.05 trillion rupees from selling shares in state-owned companies in the financial year ending March 2020. Prime Minister Narendra Modi's government needs the money to support its budget, especially after it recently slashed corporate tax to jump-start the economy and attract corporate investment.

India's GDP growth data for the July-September quarter, to be announced on Friday, is likely to show a sixth consecutive quarterly slowdown. Economists forecast a fall below the 5% growth in April-June, with contractions in such key indicators as electricity usage, exports, imports and industrial production.

The stock market has rallied despite of these headwinds.

The BSE Sensex moved from around 39,000 to 41,000 in just one month. Foreign investors are pumping in money into Indian stocks. According to CARE Ratings, the stock market saw between $10.7 billion in net inflows between April and November, compared with net outflows of $14.6 billion in the corresponding months of last year.

Avinash Gorakshakar of Joindre Capital Services said most market participants are not looking at actual economic data. The main engine for the rally, according to him, is liquidity.

"The market is very excited about the fact that divestments will happen," Gorakshakar said. "It is hopeful that some big execution will take place between January. Besides, the resolution of bankruptcy and insolvency cases is also giving people hope of improvement in banks' financials and offtake in credit."

He expects the share prices to hold at their current levels, but warns of a big drop in case the government does not follow through on its divestment targets.

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