JioPhone is bad news for Bharti Airtel, Idea Cellular: Avoid bargain-hunting in those stocks

“This must be giving shivers to competitors whether we talk of Bharti Airtel, Vodafone or Idea. This is very big and calculated move from Jio. The security deposit is aimed to retain the customers,” he said.

JIOPhone would be available for testing from 15-August-2017 and pre-booking of JioPhone will start from 24-August-2017. RJIO targets to launch 5 million JIO Phones every week, Mukesh Ambani said in the statement.

Jio introduced a disruptive tariff plan of Rs153/month for JIO Phone users with free voice, SMS, and unlimited data. The phone would also have a feature to connect to television through the affordable cable to watch content on television.

“The predatory strategy to capture telecom space is quite aggressive and highly disruptive. Considering the size and scale of Reliance it will capture a lion’s share of the market pie and therefore will disrupt many other ancillary businesses also,” Jimeet Modi, CEO, SAMCO Securities told Moneycontrol.

“One man’s gain is other’s loss is the reality in the telecom space. The pricing and launch of smart phone at effective zero cost will certainly impact and erode long term profitability of companies in telecom and cable segment,” he said.

Modi further added that the stock prices of these companies which are impacted due to Jio are likely to underperform in the near to medium term, better to avoid them and not to do bargain hunting until the time predatory strategies are alive.

Telecom companies such as Bharti Airtel closed 2.05 percent lower at Rs411 while Idea Cellular recouped some losses and ended 3.1 percent down at Rs91.90.

Jio also announced Jio Phone TV-Cable. It will enable Jio Phone customers to watch a bouquet of Jio Prime services such as movies, music, live TV, and more on their TV which led to fall in DTH and cable operator players.

BofAML does not see Jio being able to penetrate mass market with the announced offer. It sees the offer too steep for low income consumers. "It will lead to faster consolidation of the market and we do not see Jio announcement as being negative for Dish TV," it said.

The fall was fierce in DTH players as well. Dish TV closed 5.8 percent lower while Hathway Cable and Shilpi Cable slipped 3.4 percent and 4.9 percent respectively.

“The announcements towards the JIO Phone – TV would also hurt the cable TV industry. The industry had seen topline and bottom line come under pressure due to on-the-ground issues related to the rollout of digitization,” Nitasha Shankar, Sr. Vice President and Head of Research, YES Securities (I) Ltd told Moneycontrol.

“While digitization is a long term positive for the industry, it would take the next couple of quarters for the benefits to start reflecting in the earnings. During such times, if Reliance were to launch the Phone-TV, it could lead to disruption on the pricing side,” she said.

Shankar further added that she expects the incumbents to remain under pressure as realizations for data, the pressure to increase the pace of network rollout and highly leveraged balance sheets would continue to hurt profitability. “Investments in the sector should be made only from a long term perspective as near term pressures are expected to continue,” she said.