Futures Positions in Reliance Industries Reach 18-Year Peak

Last week, Reliance Industries witnessed an extraordinary surge in its outstanding positions within futures contracts. This remarkable elevation reached its zenith in 18 years, as traders strategically placed bearish bets during the recent months of weakness in the stock. Analysts have pointed out that the stock is currently oversold, and a shift in sentiment could trigger the liquidation of these bearish positions, potentially leading to significant short-term movements.

Unraveling the Dynamics of Reliance Industries' Futures Market

Open Interest and Outstanding Positions

On November 28 (Thursday), the open interest or outstanding positions for Reliance Industries soared to 185.38 million shares, marking its highest level since 2006. This significant increase came from a low of 68.48 million shares on July 10. Open interest represents the number of active contracts encompassing both bullish and bearish positions. However, on Friday, the open interest dipped to 174.32 million shares due to the 1.6% upward movement in the stock to ₹1,292. Despite this decline, analysts still emphasize that the outstanding positions remain at a high level.

ETMarkets.com reported on these developments, highlighting the persistent decline in Reliance Industries' shares over the past four months while the open interest consistently rose. This indicates a continuous build-up of short positions in derivative contracts.

Reliance shares have witnessed a substantial 18.7% decline since July 10, in contrast to the 1.2% drop in the benchmark Nifty 50. The oil & gas sector in India has underperformed, exerting a negative impact on Reliance as it is one of its core businesses. During the September quarter, gross refining margin (GRMs) or oil cracks were weak, ranging from $3 to $6 per barrel, leading to a degrowth in EBITDA for the O2C (oil to chemicals) segment. GRM, a crucial measure of a refinery's profitability, is the difference between the total value of petroleum products produced and the raw material costs. With winter approaching, analysts anticipate that GRMs are likely to expand during the October-December quarter.

Brokerage Views and Market Sentiment

Earlier in November, brokerage CLSA identified an "attractive entry point" in Reliance shares. The brokerage set a price target of ₹1,650 on the stock, suggesting a potential 27.7% upside from Friday's close. Citi also revised its rating on the stock from 'Neutral' to 'Buy' with a price target of ₹1,530, citing a favorable risk-reward ratio following the recent share decline.

Sandip Sabharwal, the founder of investment advisory asksandipsabharwal.com, noted that a change in market sentiment could prompt traders to cover their bearish bets. Reliance Industries has seen a build-up of short positions as traders have been following the generally negative market trend. However, most of the negative factors, such as lower oil prices and lower Q2 earnings, have already been factored in.

He further stated that the markets are currently "reasonably oversold" and that December has historically been a good month for markets. Therefore, a turnaround may occur in the next few days.