Bangalore: Reliance Industries has slipped from its rank of ‘Equalweight’ to ‘Underweight’ in Morgan Stanley’s ratings, reports Money.Control.com.

Morgan Stanley has reduced its price target to 650 from 921 for RIL. It quoted, "We highlight that two of three Reliance's core divisions -- refining and petrochemicals -- face near-term headwinds.” NDTV Profit quoted Essar on RIL’s downgradation, "Counter-consensus call – going underweight on Reliance Industries on our negative outlook for Asian complex margins: We cut our earnings forecasts by 9-19 percent for F2012-14 and are now 11-20 percent below the Street. The stock price looks cheap close to its three-year low. Increasing contribution from non-core earnings, and diversification in non-core businesses could lead to a stock de-rating/conglomerate discount, despite a sound balance sheet."

Moreover, the Indian oil companies are also being downgraded because of the falling rupee value. As India imports oil from other nations, it becomes very costly for Indian oil companies to pay for oil. Rupee has fallen by 16 percent against the dollar in the past 6 months and this has increased the subsidies provided by the Indian government to $26 billion.

Morgan Stanley quoted, "With five state elections in February, we think the earliest a moderate price hike could come is April. The path to petroleum decontrol, in our view, seems to be delayed due to upcoming elections, a high crude oil price environment, and a weaker rupee. Every 1/$ depreciation increases the subsidy bill by $550 million (2,550 crore). We downgrade GAIL to equal weight due to uncertainty on subsidy share as well as a lack of short-term gas supplies."

Morgan Stanley is picking Cairn India over RIL because, "Despite our sideways view on crude oil, Cairn should benefit from three key factors: increase in production due to swifter approvals; improved realization due to weakening of rupee and increasing free cash flow and attractive valuation."