Kotak fund shorts telcos on earning clouds

Kotak fund shorts telcos on earning clouds
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First Published: Thu, Jun 17 2010. 01 27 PM IST
Updated: Thu, Jun 17 2010. 01 27 PM IST
Singapore: A long-short equities fund managed by India’s Kotak Mahindra has taken short positions on Indian telecom firms as it sees earning weakening from competition and the cost of new licenses, its manager said.
India last month raised $14.6 billion through an auction of licenses and bandwidth for third-generation mobile phone services, nearly double the $7.5 billion forecast, raising fears the money to be paid by mobile phone operators would stretch balance sheets and slash earnings. “There is an opportunity to go short in the market in the telecom space,” R Rajagopal, Singapore-based principal fund manager for the Kotak India Dynamic Fund, said on Thursday.
“Because of competition and because of the higher bids that have been paid for 3G, we do believe in the quarters to come, the profitability of telecom companies will be affected,” he told Reuters.
Most of India’s telecom operators have high debt levels, with the exception of Mahanagar Telephone Nigam Ltd (MTNL), Bharat Sanchar Nigam Ltd (BSNL) and Bharti Airtel, Fitch Ratings said after the auction results.
Rajagopal said the Indian wireless market was overcrowded with 12 firms jostling for a piece of the pie, compared with three or four players in most other markets. He predicted a few would be forced to merge or sell out to stronger rivals.
The dollar-denominated Kotak India Dynamic Fund was up 0.39% in the five months to end-May, slightly outperforming India’s benchmark Sensex index which fell 3% over the same period. The fund’s volatility was 4.89% compared with 24.4% for the India market.
For 2009, the Kotak fund returned 4.56%, well below the 81% rise in the Sensex.
Rajagopal said the fund manages its short positions chiefly through India’s equity futures and options markets, whose average turnover is roughly two-and-a-half times the combined volume on the Bombay and National stock exchanges.
Rajagopal said the fund has an overall long bias on India due to the country’s 8%-plus economic growth at a time when most developed economies are struggling, and downplayed the threats posed by rising interest rates and soaring inflation.
“Indian corporates have learnt to progress even in very high inflationary periods when these companies borrowed heavily and still kept up the growth pace,” he said.
“I believe the experience of this will enable to them to wade comfortably through the levels of high inflation in the periods to come.”
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First Published: Thu, Jun 17 2010. 01 27 PM IST
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