As Adani implodes, how safe is Reliance Industries stock?

The implosion of Adani’s empire has been the biggest stock news of this week, as I wrote in this report. Companies in Gautam Adani’s empire have shed over $108 billion in value, dragging his net worth to about $60 billion. Fears of contagion have been limited, with the Nifty 50 index down by less than 3% this year. So, how safe is the Reliance Industries (INMCX:EQRELIANCE) share price?

Contagion risks remain

Adani share price collapsed after a famous short-seller warned about financial impropriety in the conglomerate. He cited the creation of offshore companies meant to pump the stock among other issues. Adani has vehemently denied the claims and said that its finances were in order. It has also continued honoring its financial obligations.

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The collapse of Adani shares has led to questions about the health of Reliance Industries, the company mostly held by Mukesh Ambani. Besides, Reliance and Adani have in recent years embarked on a debt-funded growth investments. In 2022, Reliance’s debt surged by 25% in 2022 as it boosted its investments in 5G and retail expansion. It is now set to raise $2.5 billion to fund investments.

Another concern is that the two global conglomerates are not audited by a big 4 accounting firm. Reliance is audited by DTS & Associates, a company with 6 partners. In most cases, investors prefer companies like EY and Deloitte.

This explains why the Reliance Industries share price has plunged by over 15% from its highest point in December. However, there are reasons to believe that Reliance is in a better shape to survive the carnage than Adani. For one, over the years, the company has been emphasizing on deleveraging. In 2020, it sold stakes in its retail and digital arms for $22.4 billion. It used these funds to both expand and reduce its debt load.

Reliance Industries has a steady credit rating, although this could change. It has a BBB+ rating from S&P and Baa2 from Moody’s. Further, its business seems to be doing well, as brands like Jio take market share from Vodafone Idea, as I wrote here.

Reliance Industries share price forecast

Reliance Industries stock chart by TradingView

Turning to the daily chart, we see that the RII stock price is not doing well. For one, it formed a death cross on January 13 when the 200-day and 50-day moving averages made a bearish crossover. This pattern is usually a bearish sign. 

The shares have also formed what looks like an inverted cup and handle pattern. Like the death cross, this pattern is usually a bearish sign. It had formed a head and shoulders pattern between November and December.

Therefore, there is a likelihood that the Reliance Industries share price will continue falling in the coming weeks as headline risks remain. If this happens, the shares could plunge below 2,000 INR in the coming weeks.