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JP Morgan India upgrades RIL to overweight, sees 22% upside in a year – Moneycontrol

Brokerage firm JP Morgan India has upgraded its rating on shares of Reliance Industries to ‘overweight’ from ‘neutral’ earlier and set a price target of Rs 3,170 implying an upside of more than 22 percent over the next 12 months.

The brokerage firm said that its rating upgrade is driven by improvement in earnings outlook of the refining and upstream gas business as well as the consumer technology businesses’ valuations holding.

JP Morgan believes RIL’s outperformance to the Nifty 50 will continue in 2022 given that there is a good chance of upgrades to Street’s earnings expectations for the company. The brokerage has raised its earnings per share estimate for RIL by 19 percent for 2022-23 and 17 percent for 2023-24.

“Our earnings estimates imply a sharp pullback in diesel and gasoline cracks from current record level, but RIL remains among the best positioned refiners globally, given: ability to buy and process arbitrage barrels, diesel heavy slate and, export focus,” JP Morgan India said in a note on June 16.

Another key factor behind the brokerage firm’s altered view on the stock is the lack of correction in the valuations of RIL’s consumer technology businesses. “We had earlier expected the global Tech sell-off to impact RIL’s consumer valuations negatively (Jio, Retail) and cancel out the near-term earnings upside,” the brokerage house said.

JP Morgan said that likely higher average revenue per user for the telecom business and ramp-up in footprint of the organized retail operations combined with renewables business optionality, non-energy business valuations should hold up going ahead.

With respect to the upcoming annual general meeting of the oil-to-telecom major, JP Morgan said expectations center around potential demerger or initial public offering of consumer-facing businesses.

“We do not expect any concrete timelines from this year’s AGM on the consumer businesses IPOs (Jio, Retail), even though media reports have talked about IPOs of these businesses,” JP Morgan India said.

On Wednesday, shares of Reliance Industries ended 1.2 percent lower at Rs 2,595.8 on the National Stock Exchange.

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Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.