Uncertainty continues to dog telecom stocks

Uncertainty continues to dog telecom stocks
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First Published: Thu, Dec 08 2011. 09 12 AM IST

Updated: Thu, Dec 08 2011. 09 12 AM IST
Shares of Idea Cellular Ltd fell more than 6% on the National Stock Exchange, making it one of the biggest losers among large-cap stocks. The Bharti Airtel Ltd stock fell at a lower rate of 3.6%, but again was among the biggest losers among large-caps. The only newsflow pertaining to either of these companies was that the Telecom Disputes Settlement and Appellate Tribunal has set aside the department of telecommunications’ order to impose a penalty on Idea for missing rollout obligations. Of course, this is no reason for the company’s shares to fall.
The drop in telecom stocks on a day when the broader market was flat appears to be a case of profit-booking, with these stocks having outperformed the market by a large margin in the past year. Before the fall in Wednesday’s trading session, Idea shares had outperformed the Nifty index by as much as 64%. Bharti’s shares had outperformed the Nifty by 34% during the same period.
While the prospects of the sector have improved this year, some concerns such as regulatory uncertainty remain. Besides, it remains to be seen if the industry’s tariff increases will lead to a drop in usage by customers and, hence, result in a slowdown in minutes or volume growth. Idea’s managing director Himanshu Kapania told NDTV Profit in an interview that India is among the lowest in the world in terms of mobile tariffs and, hence, the minor tweaking of prices will have no impact on the growth of the business.
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Idea Cellular’s shares fell nearly 6% on the BSE on Wednesday despite the lack of bad news. Mint’s Mobis Philipose looks into the reasons.
While this makes sense intuitively, some analysts feel that the tariff increases were partly to blame for the drop in volumes in the September quarter, which was a first for the industry. And while one awaits clarity on how consumers will respond to the tariff increase, there are other reasons for uncertainty.
The government’s new telecom policy was a let-down. Hardly any statements in the new policy will have any near-term impact on the sector, nor do they bring clarity in areas of concerns such as spectrum pricing and spectrum refarming. The response to third-generation (3G) technology, too, hasn’t been as gung-ho as some analysts had expected it to be. In addition, debt levels remain high.
This is not to say that the sector is in dire straits. But clearly, the picture isn’t as rosy to warrant an over 60% outperformance over the broader market.
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First Published: Thu, Dec 08 2011. 09 12 AM IST