Telecom stocks have been in the limelight, with Bharti Airtel hitting a record high and Vodafone Idea extending a rally for the second consecutive session, while Reliance Industries, which owns Jio, has been consolidating after a 17.5 percent rally in the past month.
The reason is a cabinet meeting scheduled on September 8 to consider a relief package for the financially stressed telcos, according to a Business Standard report, which cited unidentified government officials.
“As part of the package, there could be some relaxation on payment of levies to the government, including a one-year moratorium on spectrum instalment due in April 2022,” the report said.
“Telecom stocks are rallying for the past two days ahead of the cabinet meeting as there is an expectation of announcement of a relief package for the sector,” said Santosh Meena, head of research at Swastika Investmart. “If there is an announcement related to that, then it will be a positive trigger for the entire telecom sector as well as for some banking stocks like IDFC First Bank, IndusInd Bank and State Bank of India.”
Bharti Airtel hit a fresh high of Rs 684 on the BSE on September 8, gaining about 30 percent in two months. The stock fell 0.5 percent to Rs 666.80 at 13:20 hrs.
Vodafone Idea has advanced 48 percent so far in September amid expectations of getting some relief from the government. The shares gained 0.24 percent to Rs 8.30 at 13:21 hrs.
Through FY21, the operating environment continued to remain challenging due to ‘unsustainable pricing’ and ‘hyper-competition,’ which were further aggravated by the Covid-19 pandemic, Vodafone Idea chairman Himanshu Kapania said in a letter to shareholders.
“As the industry continues to remain under unsustainable financial duress, your company is hopeful that the government will provide the necessary support to address all structural issues faced by the sector,” he said in the letter.
Vodafone Idea is optimistic that the government will support its efforts to generate reasonable returns on their massive investments, he added.
Rating company ICRA also pointed out that government support is critical.
Vodafone Idea’s financial stress, underlined by mounting losses and rising debt. is likely to impact its financial lenders and have a bearing on employees and subscribers, ICRA said on September 6, highlighting that government support is “critical” at this point.
Support can be by way of deferment of spectrum dues, a cut in levies, reduction in interest rates and a combination of relief measures to aid the financial profile and structure of the industry, PTI reported.
“Vodafone Idea may witness big swings due to its high beta nature but the situation is still vulnerable for this counter as there is a good chance that this sector is heading towards duopoly, therefore investors are advised to remain with the top two players,” Meena said. “Vodafone Idea already rallied around 40 percent this week in anticipation of relief measures, so there is a risk of profit-booking post-announcement, while a sharp sell-off can be seen if there are no relief measures. Technically, the 200-DMA of Rs 9.5 will act as a critical hurdle.”
The average revenue per user has bottomed out and is likely to continue its upside momentum, indicating a bullish outlook for the telecom sector, where both Reliance Industries and Bharti Airtel are good bets for growth, he advised.
Reliance Industries and Bharti Airtel have witnessed multi-month breakouts and the bullish momentum is likely to continue, according to Meena.
Reliance Industries, which owns telecom operator Jio, fell 1.3 percent to Rs 2,410 at 13:32 hrs on the BSE. The stock had a strong run-up in the past one month, hitting a record high of Rs 2,479.85 on September 6 with a market cap of more than Rs 15 lakh crore.
Technical Takes
“Bharti Airtel has broken its all-time high recently. Technical indicators like the 55-day EMA (exponential moving average) line also confirm a buy in it. A channel breakout in the technical charts also confirms a buy and so we expect a higher level of about Rs 780,” said Ashis Biswas, head of technical research at CapitalVia Global Research.
He said the Reliance Industries stock has confirmed a channel breakout.
“Making higher highs on two consecutive monthly charts. Indicators like the 55-day EMA line and 22-day EMA line also confirm a bullish sentiment. We can expect a target of Rs 2,750,” Biswas said.
Vodafone Idea has been trading in a range. Biswas expects the stock will continue to trade in a small range.
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