Moneycontrol
Mar 20, 2017 12:56 PM IST | Source: CNBC-TV18

'Game has just begun' for telecom after Idea-Voda deal; positive on IT: Neelkanth Mishra

Foreign investors pumped in $3.4 billion in the capital markets so far the month of March. The latest inflow follows a net investment of Rs 15,862 crore in equity and debt last month. Prior to that, FPIs had pulled out a total of over Rs 80,000 crore in October-January.

 
 
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The merger between Vodafone and Idea Cellular has lifted the outlook for the telecom which was at the bottom of the list in terms of investing for most analysts. But, things could well turn here for the sectors as the game has just started.

Idea Cellular on Monday announced that its board has approved the merger of Vodafone India and its wholly-owned subsidiary Vodafone Mobile Services Limited with itself in the process creating the country's largest telecom entity.

“The game has just started in the telecom sector. For the longest time the industry was in a state of equilibrium where Bharti Airtel was happy with the number 1 position, Vodafone at number 2, followed by Idea,” Neelkanth Mishra, head of equity strategy for India at Credit Suisse said in an exclusive interview with CNBC-TV 18.

“Now we have three claimants who are trying to be number one. One of the companies has already claimed that they would like to settle at 50 per cent of market share. Although, it may be exciting as a whole for the economy as well as consumers but for the companies involved it would not be a pretty picture, stay cautious,” he said.

Mishra further added that we are seeing fall in average earnings per user as well as lot of competitive jostling – and you don’t want to be there in this space as an investor.

Big Call for 2017:

Apart from metals where Hindalco is the top pick of Credit Suisse, Mishra is positive on IT sector. “As the global cyclical recovery becomes more consensus among corporates, I think by the end of the year, what we assume to be 10-11 per cent revenue growth could become 13-14 per cent which could drive big rerating for the sector,” said Mishra.

On Markets:

It is hard to say if we would be able to go meaningfully higher from current levels, but what we are seeing is spectacular strong flows (global & domestic). Financial saving as a percentage of GDP is going up.

Foreign investors pumped in $3.4 billion in the capital markets so far the month of March. The latest inflow follows a net investment of Rs 15,862 crore in equity and debt last month. Prior to that, FPIs had pulled out a total of over Rs 80,000 crore in October-January.

But, the macro data isn’t looking exciting either which can support the bullish argument for long. Loan growth is at a 63 year low and was last seen in the year 1954. “What it means is – demand of capital is not there while the supply of capital is too strong, therefore the cost of capital has to come down,” explains Mishra.

The direct impact on the market is that valuation goes high and which is why we have seen a lot of IPO’s getting subscribed. The bottomline is that the broader economy is not doing too well and even from a market’s perspective, the earnings growth is likely to be in single digit.

Almost 40 per cent of the incremental growth is coming from financials such as private sector bank as well as public sector banks. But, with loan growth staying at these levels, it will be difficult to record a double-digit credit growth, explain Mishra.

“As the loan growth comes down, it would net NIMs of public as well as private sector banks which would result in cost escalation for the PSU banks. Hence, more turmoil in the banking system cannot be ruled out,” he said.

Commenting on the earnings growth for FY18-19, the consensus was 18 per cent growth and we are 16 per cent growth now. But, I think we should do somewhere in single digit, said Mishra.
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