Five reasons why Reliance stocks have fallen despite announcing a buyback

Market bellwether Reliance Industries plunged 4 per cent in early trade after the company's net profits declined sequentially (quarter-on-quarter) for the first time in the last eight quarters. At 1000 hours, shares of Reliance had recovered marginally and traded nearly 3 per cent lower. RIL was the biggest loser on the 50-stock Nifty index.

Here are five reasons why RIL shares are witnessing a selloff:

1) RIL reported 13.6 per cent fall in the net profit to Rs 4,440 crore for the December 2011 quarter. The Street expected the company to report a 10.8 per cent fall in the net profit. The company's revenue rose over 40 per cent to Rs 87,480 crore, which was higher than expectations, but that did little to boost sentiment.

2) Analysts said a fall in refining margins was a worry especially because it came on the back of a weak rupee. RIL's gross refining margins (GRMs) were at $1.1/barrel discount to Singapore Refining Margins, which has happened for the first time ever.

3) The company's board also approved a buyback of 12 crore shares, which is 3.6 per cent of equity. The buyback will be at a maximum price of Rs 870 per share and the aggregate amount shall not exceed Rs 10,440 crore. The buyback announcement failed to lift sentiments because buyback amount of Rs 10,440 is at the lower end of the Street estimates.
4) Shares might not be picked up at a maximum price of Rs 870 (since it is through open market operation).

5) Reliance Chemical & Reliance Polyole-fins hold 12 crore plus shares. These two firms are not categorized in promoter category and are 100 per cent subsidiary of company. Though, related parties have not tendered in the buyback historically, analysts waited for some clarity on the fact that they are allowed to tender or not.