Positive on telecom from medium to long-term: Motial AMC

Taher Badshah, Motilal Oswal AMC, says they are fairly positive on telecom sector from a medium to long-term perspective and find it a fundamentally attractive sector to invest in today. "We believe that pricing uptrends have still many more legs to go as we go ahead," he adds.

Commenting on rural consumption theme on the back of Motilal Oswal Investor Conference says auto firms and some of the non-banking financial companies (NBFC) suggest that there are certain interesting trends which are developing on the rural side. “There seems to be some cheer amongst companies which have larger exposure to rural markets,” adds Badshah.
Also read: QE tapering to strain banks; exports robust says Raamdeo Agrawal Below is the verbatim transcript of his interview on CNBC-TV18 Q: You must have met with a lot of guys in your conference. Are you getting a sense at all that anybody over there is smelling something positive from the rural consumption theme?
A: It has been just half a day since we started interacting with some of the companies and clearly there have been certain representations by some of the companies which have be it from either non-banking financial companies (NBFC) as well as some of the auto firms, which seem to suggest that there are certain interesting trends which are developing on the rural side. It is expectedly so, given the kind of growth that agriculture has seen in the last quarter as well as what it is probably likely to see in the next couple of quarters on the back of a fairly good monsoon season.
I think people are building up in anticipation of a slightly better festive season going forward. There seems to be some cheer amongst companies which have larger exposure to rural markets. Q: How have you seen the recent rally in the metal names? From portfolio point of view do you think time has come to include some of these stocks in your portfolio?
A: We actually do not have any meaningful position in the metals side. Of course these stocks have rallied, but the rally has essentially been backed to some degree on the back of the recovery that we are seeing in US on a continuing basis as well as some recovery even in Europe and few other areas. China's numbers have been reasonable despite the concerns around their overall growth trajectory. Therefore, I think it has been guided by that. Also many of these stocks had been significantly beaten down too.
There are these local expectations that prices of certain products will probably be raised given the way the USD-INR has moved and to that extent there needs to be some adjustment on the local prices.  So maybe a combination of all that has probably led to a fairly decent rally in some of the metal stocks in the recent past. Q: How should one approach some of these exporters in terms of portfolio course - IT and pharma, the stocks that have rallied 40-50, in certain cases 60 percent? Should you let them run or is there a case for booking some of the profits here?
A: If one has the positioning and a horizon of over the next 12-15 months clearly one should allow them to run further. There is as of now no case to take profits given the fact that while we have seen a fairly decent rally, one has to understand that especially the tech sector comes from a situation where it has been an underperformer over the last couple of years. Valuations had also come down in certain cases perhaps even below market levels. So, we are seeing the rallies from those kinds of valuations.
We are today in a situation where the IT trends are probably looking a little more better compared to what they were over the last couple of years. So clearly there is a business strength underlying this whole thing. While of course there is a leverage to the rupee. At the end of the day rupee is essentially not going to translates as much of the gains and rupee would have not made as much of a difference had the underlying business strengths not been so strong.
I would think that even if the rupee were to probably take a little bit of breather here and maybe appreciate versus the dollar for a while, the export oriented sector, especially the tech would make a lot of sense.
There is a fair degree of under-ownership in FMCG sector even today and the benchmark weightages given the rally of the last couple of months has actually gone up quite considerably leading to the further disparity in the underweight of various portfolio managers. Q: What is your fundamental call on some of these telecom names? Some of them have been big outperformers. We only have 3-4 listed stocks. How would you approach these stocks?
A: We are fairly positive on the telecom sector, although there are limited options and opportunities to play. We are reasonably positioned out there, not just from the shorter term end, but even from a more medium to long-term perspective and we believe that pricing uptrends has still many more legs to go as we go ahead. There is a good amount of improvement in profitability that can be seen in many of these companies. Plus improvement in cash flows too, given the fact that spectrum costs will probably be a little more benign than what they were in the previous rounds of capex.
Of course there is more long-term opportunity in data, which will emerge in some of these companies, in many of the telecom plays. All in all we find it pretty fundamentally attractive sector to invest in today.