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The Equitymaster Research Digest

Our Biggest Gainer and Biggest Loser in 2016
Dec 28, 2016

  • The big telecom downgrade
  • Microcap Millionaires and 2016
  • You're invited: Our most premium membership

We have been worried about Indian telecom players for quite some time now. From a note a year and a half back:

  • There is a feeling that the day these companies start earning high ROCEs is not likely to come in the near future at least or even if it comes, it will be short lived because that's the way the industry functions.

    There will always be some or the other problem on the horizon that will put a downward pressure on margins and ultimately the returns on capital.

    And if one wants to stick to this view of things always remaining difficult in the industry, then there's no way the stocks can command the kind of valuations they are commanding currently.

And that's why Bharti and Idea Cellular have fallen 28% and 60% respectively since then.

In comparison, the Sensex is down only 8%.

We even recently downgraded the valuation bands we gave to these companies. In a detailed note to our subscribers, we laid out the rationale as clearly as we could...

  • India's telecom sector faces an unprecedented situation. The dramatic entry of Reliance Jio (RJio) has ensured that pricing wars will continue for a long time. In this light, we have reassessed our financial estimates for two telecom stocks under our coverage, Bharti Airtel and Idea Cellular.
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