As per the report, Reliance Industries' operating cash flow would fall 14 per cent in FY21.

Mukesh Ambani-led Reliance Industries Ltd (RIL)'s consolidated earnings would be lower by 9 per cent while operating cash flow would fall 14 per cent in FY21 following 20 per cent stake sale in its oil-to-chemical (OTC) business to Saudi Aramco, as per a Morgan Stanley report.

RIL plans to sell a 20 per cent stake at an enterprise value of $75 billion. At the same time, it will source 500 kbpd of oil (36 per cent of its total requirements) from Saudi Aramco.

"Once completed, we estimate the stake sale will make RIL's energy business nearly debt-free, but it will lower RIL's FY21 consolidated earnings by 9 per cent and operating cash flow by 14 per cent," the investment firm said in its report.

RIL, in its recent Annual General Meeting (AGM), had announced agreeing to a non-binding letter of intent from Saudi Aramco regarding proposed investment in its refining, petrochemicals and fuel marketing business.

"We upgrade RIL to Overweight after the near 12 per cent decline in the past three months and 8-10 per cent cut in earnings expectations for FY20 and F21. We believe the expectations are a lot more moderated, and with both refining and petrochemical industry margins touching cash cost quite quickly in the past quarter, the downside risks are now well flagged," said the advisory note to investors.

Noting that while recovery in energy margins will be slow (especially against the backdrop of weak global demand), Morgan Stanley said it sees support from slowing supply growth in polyethylene and refining.

On the petrochemical industry, it said, oversupply in naphtha markets and weak chemical demand have dragged refining margins lower over the last six months.

This has been further compounded by weakness in demand growth. This has led industry margins to touch cash cost of $3.5/bbl and has driven run cuts for marginal refiners in China and the US, the research report from Morgan Stanley said.