BUY OR SELL-Is Reliance Industries' underperformance a blip?

* 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/])

By Pratish Narayanan and Ami Shah

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.

LONG-TERM BET