The Hindu Business Line : Media: The plot thickens

The macro environment for media stocks remains unchanged. Even if consumer demand slows, an intensely competitive environment in major consumer sectors such as FMCG, financial services, real estate and telecom/ DTH will ensure sustained advertising spending.

We are particularly bullish on the filmed entertainment industry. Though the segment appears to be going through a dull spell now, it is relatively slowdown-proof.

From a stock-specific perspective, however, the near-term outlook might be dim. Despite the significant correction, media stocks are not exactly “cheap” and in a risk-averse environment, they might under-perform sectors that are more attractively valued

This was borne out in the underperformance of the sector in 2008 despite strong earnings performance.

Several leading players are also in an investment mode which could exert pressure on earnings in FY 09.. With competition intensifying across segments, there are challenges to execution. Fresh exposure to the sector may be avoided at this juncture, as there may be room for further de-rating of valuations, considering the heightened risk aversion in the market.

Preferred picks: Buy PVR and Prime Focus, given their attractive valuations. Hold Zee Entertainment and Sun TV, as leading proxies for the sector.

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