Reliance's old business keeping the stock in a sweet spot: Anand Tandon

Reliance Industries (RIL) is in a very sweet spot in terms of its traditional business and its ability to consolidate in the new businesses, says independent market analyst Anand Tandon in this interview. Edited excerpts:

What are you making of the flip-flop that we are seeing in the equity market as dips are getting bought into?
The liquidity has been keeping the market up. It is likely to keep it up unless there is a reason to assume that it will get tightened. Only two things can happen - either RBI decides to make less money available and reduce liquidity in the market or we have an issue in large markets around the world.

We are part of a global cyclical up move. How long it will last is anybody’s guess. But if you are an investor in India and want to take part in the upside, the only thing you can do is to reduce your exposure in less liquid names with every up move.

So what is that you are advising investors to do within the universe of liquid stocks?
I do not think you can make major changes on a day to day basis if you are an investor. But there are some major trends. The inflation trajectory is now definitely on the way up.

From an inflationary perspective, companies which have a moat and are able to raise prices will benefit. Players which are catering to the international markets are benefiting from a shift out of China. Midcaps and value stocks have been the flavour largely because of liquidity going up. More importantly, as inflation goes up many of the smaller companies also tend to benefit.

What is your view on Reliance Industries ahead of its AGM later this week? What kind of announcements do you think the Street wants to hear?
I am not sure what the Street wants to hear, but certainly having Saudi Aramco chairman joining the board would be a great positive. That is one part of the business which has not seen any major investment despite talks going on for a long time. It will pretty much finish off the agenda for capital raising for Reliance for a long time. More importantly, that so-called older businesses of Reliance - refining and petrochemical - should both be doing very well, given the scenario in which we are operating. So while there is a pause in the new business of telecom, the old businesses are firing on all guns. I do not see a problem with Reliance at all. I think it is in a very sweet spot in terms of the traditional business, the capital they have raised and their ability to consolidate in the new businesses.

The real challenge would be whether the technology investments that they are making will begin to fructify in terms of leadership in the market in some segments and in terms of being able to create a business around which there are some moats. While their partners are very good and should be able to capitalise, I am still not convinced about the ability of Reliance itself to benefit from being anything other than a gatekeeper. But that said, in terms of cash flows and earnings, Reliance should be set in a sweet spot at this stage.

How are you reading into the entire media space? Multiples stocks have had virtually nil revenues during the lockdowns.
The problem with the multiplex space is that there has not been enough of a collapse given the fact that they have not had revenues for almost a year now. If they were cheaper, there could have been a case that they would benefit strongly from the opening up of lockdowns that we are beginning to see across many states.

Revenues will come back, but it will take a while for them to be able to justify. While they have managed to squeeze their costs, it cannot last forever. If business comes back, you will have some of the costs being built up again. The second problem is that you may find that there is actually a significant shift in the business opportunities itself. People have got used to watching OTT content and therefore there is a limit to how much they may want to go out and splurge on high price tickets, especially the pricing at which PVR operates.

With gaming and OTT, many of the traditional modes of entertainment may be a little less attractive. Therefore, pricing will become an issue. As an opening trade, you are better off buying hospitality and restaurants rather than going out for companies which have not fallen enough to justify a rise from here.