Time may be ripe to buy battered telecom stocks: Fund managers
Fund managers are turning to battered telecom stocks in hope that the bottom for the sector may have been reached, & turnaround is in sight.
MUMBAI: Fund managers are turning to battered telecom stocks in the hope that the bottom for the sector may have been reached, and that a turnaround is in sight, a view that's reinforced by the fact that some managers are willing to give the sector an 'Overweight' rating from an 'Underweight' only a few quarters back.
While increase in minutes of usage and the rise in adoption of data services may improve the industry outlook, shares of telecom companies such as Bharti Airtel, Idea Cellular and Reliance Communications have rallied between 20-80% towards the end of April from their earlier lows.
"According to our view, telecom tariffs have bottomed out. Now, we expect consolidation in the sector," said Manish Kumar, EVP & chief investment officer at ICICI Prudential Life Insurance, who manages assets worth Rs 70,000 crore. "The top three players in the telecom space are likely to gain market share at the expense of smaller players as they don't have necessary funds for expansion," added Kumar.
Money managers say the returning of mobile airwaves by Tata Teleservices, India's sixth-biggest mobile phone firm by users, and scaling down of operations by Norway-based communication company Telenor and Aircel, India's seventh-largest cellular company by subscribers, in many of its circles suggest that the telecom sector has bottomed out, and the path to recovery is not very far away.
"We are positive on the telecom sector, we expect realisation rates to move up in coming quarters, as several operators like Aircel, Tata DoCoMo and Telenor are scaling down their operations," said Suresh A Mahadevan, head of India equities, UBS Securities.
"The data services revenues are beginning to take off, we believe that data will be an excellent growth driver in the medium-term for telecom companies," he added.
The management of Idea Cellular echoed similar views, saying it expects increase in data usage, driven by reduction in prices of data-enabled devices (smartphone, router, data card, etc), as this will lead to more affordability of data services among consumers.
"Telecom is crucial to the Indian consumption story, and the sector deserves much higher valuations like FMGC," said Anand Shah, chief investment officer at BNP Paribas Investment Partners. "The competition in the sector is reducing, the pricing power is improving, and the minutes of usage are increasing too. These factors are providing enough reasons to be positive about the sector. The growth in data services is an icing on the cake," added Shah.
"We have been maintaining telecom sector's weightage at 'Overweight' in some of our funds -- Kotak 50, Kotak Opportunities and Kotak Select Focus," said Harsha Upadhyay, head of equities, Kotak Mutual Fund. "Most of the regulatory concerns are behind us. With competitive intensity reducing, many of the telecom companies have withdrawn their discount schemes which show that the pricing power is coming back to the industry." he added.