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Telecom Stocks Outlook for the week – 23 to 27.01.2017

Telecom Stocks Outlook for the week – 23 to 27.01.2017


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Telecom Stocks Outlook for the week – 23 to 27.01.2017
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Stocks of most telecommunication companies are seen subdued next week as concerns over intense competition have hit the pricing mechanism and profit margins of operators. Reliance Jio Infocomm Ltd, the telecom arm of Reliance Industries Ltd, shook the industry by offering multiple free data services as part of its inaugural offer in September, leading to worries over erosion in market share of incumbent operators and fall in average revenue per user, both for data services and voice calls. The near term outlook for the sector looks quite painful. But news on consolidation seems to be coming faster than expected. We expect that there will be four-five serious operators instead of seven-eight at present. After Reliance Jio extended its inaugural free offer until Mar 31, telecom operators such as Bharti Airtel Ltd, Vodafone India Ltd, and Idea Cellular Ltd also announced free data offers for fourth-generation subscribers in order to retain their user base. We do not expect any meaningful improvement in revenue and margins at least until the middle of financial year 2017-18. The price war many continue for much longer. Competition in the sector, triggered by Reliance Jio, is also likely to weigh on the Oct-Dec financial results of telecom companies. The revenue for operators in Oct-Dec is expected to be down 5-6% on quarter. Stocks of Idea Cellular are under pressure and will trade with a negative bias. Stocks of Bharti Airtel will trade in a thin range and no major activity is expected. Reliance Communications, which has fallen 34% in the past three months, is expected to further weaken. The stock is trading at an alltime low price.