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Saturday, October 31, 2009

Telecom Stocks Crash - To Buy Stocks Or Not?

Telecom stocks have crashed with Bharti Airtel announcing it's results. Have a look at the news exerpts below and outlook for Telecom stocks.

Bharti Airtel lost 6.1% at Rs 292.15, RCOM was down by 7.3% to close at Rs 175.9, while Idea Cellular closed 6.4% down at Rs 52.1 and state owned MTNL shed 1.2% to end the day at Rs 69. Sensex closed 0.9% or 156.4 points lower to close at 15,896.3 points.

"We call it the DoCoMo effect on these counters. Ever since Tata DoCo-Mo announced one second one paise tariff which has now been the pivotal point of discussion in the telecom market, the existing players are under excessive heat both from retention and attracting new customers. We remain cautious on the sector owing to the price war heating up, entry of new players and overhang of 3G auctions," an analyst with a brokerage said.

Airtel has lost 30.2% in the past month from Rs 418.5, RCOM is down by a huge 42.9%, Idea Cellular counter has shed 30.92% while MTNL has lost a fourth in its stock price.

DD Sharma, vice-president , research at brokerage Anand Rathi Securities , said; "Telecos have dropped their prices for STD, local calls and SMSes to around 50 paise, thus creating a price war. Since the pricing situation is expected to become more competitive - in subsequent quarters (December and later) pressure on margins will be higher for telecos. Therefore, stocks seem to be taking a beating at the bourses."

Although you might feel like rushing to buy stocks of telecom companis, do not run to do so. we are yet to see the effects of recent tariff war that has begun among telecom companies. There are new telecom operators who are playing business strategy at war level to acquire new customers in competition with existing players and at the same time they trying to snatch customers of existing companies.

This price was is definitely going to make difference in balance sheet of all telecom stocks and so our policy for buying stocks should be to ait and watch for some more time.
(News exerpts used from TOI Business)

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