Reliance Industries shares jump after $7.2 billion BP deal

Shares in Indian energy major Reliance Industries bucked a subdued Mumbai market and rallied nearly 5% on Tuesday morning after a $7.2 billion deal with BP was seen as boosting the company's outlook.

BP Plc agreed late on Monday to buy a 30% stake in 23 oil and gas blocks owned by Reliance, in one of the biggest foreign direct investments in India to date. 

Analysts said the deal would help Reliance expand its deepsea exploration and development off India's east coast, and also give it financial muscle to buy shale gas assets in the United States.   

"Reliance definitely benefits from the deal. With the cash coming in, we may see more of shale gas buys coming up. Also, it stands to benefit from BP's technology," said Deven Choksey, managing director and CEO of KR Choksey Shares.                                           

He said he would recommend buying Reliance, which is controlled by billionaire Mukesh Ambani, the world's fourth-richest man according to last year's Forbes magazine rich list.

At 11:53 am (0623 GMT), shares in Reliance with a market value of $72.4 billion were up 4.5% at Rs999.80, after hitting 1,004, while the main stock index was down 0.3%. 

A total of around 13.8 million Reliance shares were traded on BSE and NSE, around 2.5 times its 30-day daily average volume.                                           

Reliance's Global Depositary Receipts jumped 6.7% in London on Monday, following the BP deal that was announced after markets in India had closed.

"BP puts its stamp of faith on RIL's E&P portfolio; we see this as very positive," Daiwa analysts Atul Rastogi and Nirmal Raghavan said in a note, while maintaining their outperform rating on the stock.

Brokerage CLSA raised its rating on Reliance to "buy" from "outperform" late on Monday.                                           

However, Vikas Pershad, CEO of Chicago-based Veda Investments, was not convinced about investing in Reliance which is down 5.6% in 2011 after dropping nearly 3% last year.

In comparison, the BSE index is down 10.3% this year after rising 17.4 percent in 2010.

"The deal does not really add to Reliance's EPS immediately. It raises a question. What is Reliance going to do with all the cash," said Pershad, who does not own or recommend the stock for the first time in 15 years.   

"In a country were you can earn 8-10 percent interest on your money, am I confident that I will get better return than that on Reliance? The answer is: No."