Shares of Reliance Industries Limited (RIL), India’s largest company by market capitalisation, may have been declining in a falling market but it remains top pick for brokerages Goldman Sachs and Morgan Stanley.

Goldman Sachs in a report released on Monday said although the macro environment for hydrocarbon business is challenging due to slowing oil demand because of COVID-19 outbreak, it sees a 38% potential upside in the scrip.

“The 18% correction in RIL’s share since the outbreak of coronavirus in mid January (vs Sensex down 10%) appears overdone, and we reiterate our Buy rating with 38% potential upside," said Goldman Sachs.

RIL has under-performed the benchmark Nifty by 6.5 percentage point year to date due to deepening concerns over demand for oil refined products and petrochemicals following the outbreak.

So far this year, the RIL stock has declined 22%. In early deals today, shares hit a low of ₹1,170.25--a level last seen on 9 August, 2019--falling as much as 7.86% - its steepest fall since 4 October, 2018.

The Sensex and Nifty were both down over 4% each.

"We estimate the sharp decline in RIL’s share price is implying that the value of the refining and chemical segment has halved versus the start of the year, under performing even pure-play refining and chemical peers with simpler assets. This is at a time when the business outlook for the telecom business has improved due to AGR-related issues, with RIL being the biggest beneficiary from an absolute dollar perspective," Goldman Sachs said.

According to the brokerage, key catalysts driving share price higher would be - upcoming earnings which could see a sequential EBITDA growth driven by consumer businesses, lower leverage from free cash flow generation as the capex cycle has come to an end, new commerce launch, and closure of announced asset sales.

The price war unleashed by Saudi Arabia has led to a rout in the global oil market, which witnessed its worst price drop since the 1991 Gulf War, with Brent slumping to $31.02 per barrel.

A decline in demand for jet fuel following a rise in daily flight cancellations has affected refining margins. About 48,000 flights globally have been cancelled, reducing demand by up to 0.7kbpd.

"Since jet fuel and diesel are both mostly interchangeable, it's hurt about half of RIL’s refinery output. However, a decline in crude official selling price has cushioned most of the impact. The stock is pricing in margins near industry cash cost levels (like in the last quarter). If they were decline to those levels, there's a 4% negative impact on net asset value," said Morgan Stanley in its research report dated 8 March.

Morgan Stanley, however, said it maintains its overweight rating on RIL, making it a preferred stock in its pick.