The ultracompetitive market and uncertainty over the impact of mobile number portability have eroded the confidence of domestic institutional investors (DIIs) that have been paring their stakes in Bharti Airtel, Reliance Communications, Tata Teleservices (Maharashtra) and Idea Cellular in the last year.

“New investors are not entering telecom stocks as there is no appetite for risk in this sector. Even existing ones are pruning their holdings owing to the overall hypercompetitive business environment,” said Mr Priyank Chandra, Telecom Analyst, Dolat Capital.

Idea Cellular was the least favoured among DIIs which reduced their stake by 77 basis points on a sequential basis and 66 basis points on a year-on-year basis. Likewise, they pared their stakes by 18, 54 and 76 basis points each in Tata Teleservices (Maharashtra), RCom and Bharti Airtel respectively.

“In the last year, telecom stocks were losing ground and underperforming in comparison with the benchmark Sensex. DIIs were, therefore, underweight on this sector and investing in Sensex stocks,” said Mr Gaurav Dua, Director of Research, Sharekhan Securities.

However, analysts concur that the slide in DII holding could have been much more drastic. While Indian telecom operators are faced with the challenges of falling profitability and competitive market dynamics, the outlook has certainly improved in the last six to eight months with no operator announcing any further price cuts in call rates.

MNP factor

“The outlook for the sector will improve going forward with consolidation and 3G services gaining traction,” said Mr Chandra. Another school of thought suggests that institutional investors are waiting to see what kind of impact mobile number portability (MNP) will have on the numbers of listed telecom operators before placing their bets.

“The top 20 per cent subscribers of mobile operators control around 80 per cent of the margins enjoyed by them. Hence MNP, which will see churn among corporate customers and top post-paid customers, will have an impact on earnings,” said Mr Kunal Bajaj, Director India of advisory firm Analysys Mason.

Though telecom operators are downplaying the impact of MNP, institutional investors will be cautious in their approach, added Mr Bajaj.

According to initial estimates, Bharat Sanchar Nigam and RCom have emerged the biggest losers as a result of MNP which was introduced a month ago in Haryana. While BSNL has lost a net of over 20,000 subscribers, RCom has lost nearly 13,500 as on January 16. The biggest beneficiaries were Vodafone and Bharti Airtel.

Interestingly, FIIs were bullish on the counters of Idea Cellular and RCom. While they increased their stake in the Aditya Birla group company by 134 basis points sequentially, their holding in RCom went up by 89 basis points.

“Shares of both Idea and RCom were laggards last year and hence FIIs decided to go in for ‘value picking',” an analyst with an international brokerage said.

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