* Ambani gas dispute, weak refining margins cloud outlook
* Long-term prospects bright, drop may be buying opportunity (For more Reuters BUY OR SELLs, click [BUYSELL/])
MUMBAI, Nov 13 (Reuters) - Shares of India's biggest listed company Reliance Industries (RELI.BO) are down since mid-June, compared with the rising benchmark index, in an unusual occurrence for a firm seen as a bellwether for the country's stock market.
Investors have been worried about a gas-pricing dispute between the company, led by billionaire Mukesh Ambani, and Reliance Natural (RENR.BO) that is controlled by his estranged younger brother Anil. The dispute is being heard by India's top court. [ID:nBOM489932]
While an unfavourable ruling from a lower court in June has helped knock 11 percent of its market value to about $75 billion over the past five months, Reliance shares have jumped 15 percent over the past week on rumours of a settlement between the Ambani siblings even though the brothers have ruled out a patch-up.
Is the tide turning for investors in the refining, petrochemicals, and oil and gas exploration giant?
RIPE FOR TAKING PROFITS
Not so fast, according to R. K. Gupta, managing director of Taurus Mutual Fund.
"The stock has reached its peak, and is due for a correction," said Gupta, adding valuations looked very stretched and around 1,850 rupees to 1,900 rupees would be a fair price for the stock. Reliance shares closed at 2,100.20 rupees on Thursday. "It is time to book your profits in Reliance Industries."
A ruling from India's Supreme Court will determine whether Reliance Industries stands to make or lose billions of dollars through sales of gas from its find in the Krishna Godavari (KG) basin off the country's east coast.
Adding to the uncertainty is a cloudy outlook for the firm's refining margins, which have been slashed by a sluggish global economy and has led to a fourth straight fall in quarterly profit. [ID:nBNG441150]
"Estimates for the company cannot be raised unless refining margins pick up, and the court ruling is out," said Maulik Patel, an oil and gas analyst at K.R. Choksey Shares and Securities.
"We don't expect refining margins to improve quickly."
The percentage of analysts with a "hold" rating on Reliance has dropped 14 percent to 12 over the past 90 days, but the number of "sell" or equivalent recommendations is unchanged at eight in the period, data from Thomson Reuters StarMine showed.
Others say the declines provide good buying opportunities for investors looking for gains over a year or more, and that the company's long-term prospects are bright.
"The stock is trading cheaper than the benchmark index, and looks attractive right now," said Deepak Pareek, an oil and gas analyst at Angel Broking, which expects Reliance to trade between 2,100 rupees and 2,250 rupees over the next two to three weeks.
"The stock has the potential to be the best performer in the oil and gas sector as the company's businesses shape up better," said Pareek, who has a "buy" rating on Reliance Industries.
The company's stock trades at 18.2 times forward earnings, compared with an 18.6 multiple for the broader BSE index .BSESN.
An expected ramp-up in gas production from the company's field off the east coast could boost results, some analysts say.
"Even if the court case is decided otherwise, the businesses of the company are strong, and that would help it cover up," said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services.
The number of analysts recommending buying Reliance has risen 25 percent to 10 over the past 90 days, according to Thomson Reuters StarMine, which weights analysts' forecasts and recommendations by their track record.
The main Mumbai market, in which the firm's stock has the most weight of about 14 percent, is up almost 10 percent since mid-June.
The divergence between the index and its biggest constituent is viewed as an anomaly by some.
(For a graphic on the moves of Reliance and the index, click
"If you look back into history, this company would pull the market up single-handedly," said Arun Kejriwal, whose investment firm advises wealthy clients.
"What's happening now is unusual," said Kejriwal, who owns several stocks in the oil and gas sector including Reliance Industries. (Editing by Ranjit Gangadharan and Muralikumar Anantharaman)