Reliance Industries shares may see sharp short covering once it closes above this level

Shares of Reliance Industries Ltd. are trading with gains of close to 2% on Friday's trading session. The stock is seeing a recovery from the lows of ₹1,217, which it had declined to on November 21.

The recovery comes after the stock had corrected over 20% from its recent peak of ₹1,608.

Reliance Industries also issued one free share for every one share held by its shareholders recently.

Analysts believe that while this fall may have been a result of short selling, any change in sentiment around the stock or price action above appropriate levels can trigger a sharp short covering upmove in the stock.

"This is the highest open interest (OI) since 2006 and it has been pretty much one way up on the OI chart even as prices were continuously falling for Reliance Industries. It has been a relentless sell-off over the last one to one and a half months," Rohit Srivastava of Indiacharts.com told CNBC-TV18 on Friday.

"So the inference essentially means that if there is such a big short built up, any kind of reversal in price would result in a lot of short covering. Whether it is just price action or whether it is news based is something we will have to see but there is a case that any turnaround could drive short covering in the stock and that is something to watch out for," he added.

"In the last two months, cumulative basis, the shorts have been very high. And if you have to compare it with the last decade, the shorts have been quite high. When we look at the charts, Reliance has already tested the ₹1,220 support, it bounced back. The short covering move is going to be very aggressive for Reliance, you can see heading towards ₹1,400 levels for the rest of December series. One can actually accumulate and continue to hold the longs. We feel that the short covering trigger may happen in the first half of December series itself, the stock is looking good. It just has to cross the ₹1,320 resistance. Above that, you can see the move towards ₹1,400 on a positional basis," Soni Patnaik of JM Financial said.

Shares of Reliance Industries are trading 1.7% higher at ₹1,291.9. A lot of sell-side analyst commentary has also come in for the stock recently, with projected upsides between 20% to as high as 35% for the Nifty 50 heavyweight.