Current adverse regulatory environment and a disappointing quarterly result from sector bellwether Bharti Airtel are expected to weigh on telecom stocks in the coming sessions. Telecom stocks are expected to under-perform the broad market in the medium term and currently investors have been recommended reducing their exposure to the sector.
Bharti Airtel on Wednesday announced a disappointing set of numbers for the Apr-Jun quarter, with net profit declining 24.2% on quarter to 7.62 bln rupees, as sales were impacted due to higher service tax and regulatory restrictions. In the futures segment, Bharti Airtel has seen significant build-up of short positions. In the coming sessions, the stock is expected to see consolidation between 250-290 rupees.
Delay in the commencement of the 2G spectrum auction process prolongs the uncertainty for the telecom companies, whose balance-sheets are highly stretched on account of high amount of debt raised for acquiring 3G spectrum in 2010.
The government has appealed to the Supreme Court to extend the Aug 31 deadline for conducting the auction to November. Telecom service providers have claimed that the final 2G spectrum reserve price and the Department of Telecommunication's proposal to levy one-time spectrum fee on service providers will add further pressure on their operations.
The Union Cabinet has set the base price for the auction 5 MHz of spectrum in the 1,800 MHz spectrum bandwidth at 140 bln rupees, against 181.1 bln rupees recommended by Telecom Regulatory Authority of India. Service providers have termed the base price as high. The base price is seen negative for incumbents such as Bharti Airtel, whose licences will come up for renewal in 2014-15.
(www.rupeedesk.in)
