Reliance Industries Will Benefit the Most From China’s “Anti-Involution” Drive, Says Morgan Stanley

Morgan Stanley has maintained an overweight rating on Reliance shares and raised its 12-month price goal from ₹1,602 to ₹1,701.

India’s Reliance Industries Ltd. is expected to gain the most from China’s efforts to reduce overcapacity across various industries, as well as from the giant’s own efforts to streamline its operations, according to Morgan Stanley.

According to analysts, including Mayank Maheshwari, billionaire Mukesh Ambani’s conglomerate is expected to become the primary beneficiary of China’s focus on reducing excessive competition within energy and solar supply chains, as noted in a September 1 report.

Reliance is currently going through its own version of self-anti-involution in the consumer industry while also benefiting from the anti-involution drive in multiple ways, neither of which has been reflected in prices.

What China meant by “involution” was intense competition with little payoff. It includes strategies used by companies and policymakers to reverse that trend, a shift that has increased stock prices as Beijing battles against deflation.

China’s strategy to address deflation has initiated a new era of policy focus, which the government refers to as “anti-inflation.” These policies will help address the ongoing overcapacity in crucial industries. It aims to increase profit and stabilize prices. Investors may view this policy as a significant opportunity, particularly among leading companies that will benefit from industry consolidation.

However, certain industries are already set to gain from these changes. Many companies in the targeted domains are already fairly valued, but some companies are likely to see long-term benefits. Some EV companies remain undervalued, and those that are fairly valued may offer a favourable entry point for gaining exposure to companies positioned to capture more market share, achieve higher utilization rates, and increase profitability. This will happen when China rolls out its anti-innovation measures.

As overproduction forces China to rationalize its polysilicon manufacturing, Reliance is building a fully integrated solar supply chain in India. This move will reduce the company’s energy expenses by 40% by 2030 and increase income from new energy sources to 13% by 2027, according to Morgan Stanley.

Morgan Stanley analysts suggest that China’s anti-involution measures mark the lowest point in the petrochemicals cycle and that its measures to address the overcapacity in the solar sector will help pricing for Reliance’s solar supply chain. They project that anti-involution measures, both in China and at Reliance, could add an additional $20 billion in net asset value and increase its earnings forecast for fiscal 2028 by 17%.

Morgan Stanley has maintained an overweight rating on Reliance shares and raised its 12-month price goal from ₹1,602 to ₹1,701, indicating a potential increase of 26% from its closing value on Monday. The company analysts noted that current market valuations indicate near-zero value in new energy and AI investments, with limited growth opportunities in the Fast-Moving Consumer Goods (FMCG) sector.

Brokerage firms also predict that there will be sustained long-term growth opportunities for Reliance’s shares. Nuvama, a financial services company, has set its highest target price at ₹1,733. They were betting based on the company’s new energy sector, which will bring a multi-decadal opportunity, with ongoing O2C expansion and the adoption of artificial intelligence, along with FMCG providing additional growth avenues.

The stock rose up to 2% in early trading, extending its year-to-date gain to over 13%. With a trading valuation of 21 times earnings, this aligns with the five-year average for this metric.

In a separate note, it is indicated that there is an 80% chance that the stock will appreciate in absolute terms over the next 60 days, all thanks to positive sentiment surrounding anti-involution efforts in both China and at the company, as well as investments in AI.