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Mint
5 days ago
- Business
- Mint
Why foreign investors are dialling into telecom stocks
The telecom pack is back in the spotlight, drawing strong interest from foreign investors, with signs that domestic mutual funds may be catching on as well. NSDL data show that out of the $2.32 billion poured in by foreign portfolio investors in May, about $1.88 billion went into telecom stocks, making for the biggest-ever monthly FPI inflow into India's telecom sector. It's also a steep jump from $523 million in April, signalling rising FPI confidence in the telecom space. One of the main reasons for this influx of capital in the telecom sector could be Singtel selling its 1.2% stake in Bharti Airtel in a block deal in mid-May, on a private placement basis, to international and Indian institutional investors. Also Read: FPIs return to India, but will they stay? A crucial event hangs heavy Structural reset Market participants believe the sector is undergoing a major structural shift, which is putting telecom stocks back on the investor radar. Average revenue per user (Arpu) has improved significantly post-Covid, said Krishna Appala, senior research analyst at Capitalmind Research. Arpu had dropped below ₹120 by 2018 amid intense price wars. Now, Bharti Airtel's Arpu is at ₹245 and Reliance Jio's at ₹203, with long-term targets closer to ₹300. The market has consolidated, and while Vodafone Idea retains about 18% share, its share continues to face steady pressure from the other two stronger players, he said. The sector is experiencing a growing subscriber base and a rise in data usage, with 5G monetization opening up an incremental revenue stream for players, experts said. There is a broad consensus among market participants that the wireless industry is on a growth path, driven by a consolidation in the telecom space and a steady stream of tariff hikes over the past few years. 'Since the average price of mobile data in India remains one of the lowest in the world, we see further scope of tariff increase going ahead and that gives confidence about the outlook of the telecom sector," said Piyush Pandey, research analyst at Centrum Broking. Besides the wireless segment, Pandey added that the fixed broadband and B2B segments are also witnessing strong momentum in revenue growth. For now, Pandey finds Bharti Airtel and Indus Towers attractive in terms of business outlook. Centrum has a 'buy' rating on Bharti Airtel and Indus Towers and a 'reduce' recommendation on Tata Communications and Vodafone Idea. However, capital expenditure intensity in the telecom sector is falling sharply, said Krishna Appala, senior research analyst at Capitalmind Research. He pointed out that telecom operators had spent heavily on 5G rollout over the last two years – nearly ₹80,000 crore cumulatively in FY24. 'But in FY25, we expect capex to decline 15-20%. The capex-to-revenue ratio, which peaked at 30-45%, is now coming down to around 18-25%. It suggests companies are finally set to see returns on their heavy capex investments," Appala said. While Airtel has industry-leading Arpu with strong focus on execution, Indus Towers is a potential beneficiary of increase in capex by Vodafone Idea Ltd. Meanwhile, Tata Communication is focussed on B2B telecom segment, he pointed out. Also Read: When homegrown capital outgrows foreign funds: Can India fund its own growth? Mutual funds warm up Recent trends also suggest that the telecom services and equipment space could see buying interest from domestic mutual funds once they begin deploying capital, experts said. In May, mutual funds bought ₹5,768.7 crore worth of telecom stocks, with Bharti Airtel, Indus Towers, Vodafone Idea, Tata Communications, and Railtel Corp. being the top picks, JM Financial data showed. In April, mutual funds sold telecom services stocks worth ₹2,852.2 crore. The report pointed out that telecom makes up 4% of the BSE 200 index, but mutual funds are still trailing that mark, holding 1.1% less than the benchmark. JM Financial has a 'buy' rating on Bharti Airtel's stock and a 'hold' recommendation on Vodafone Idea. Also read: Trai, telecom companies spar over data demand Signs of rotation Even as the benchmark Nifty 50 declined 1.2% over the past month, several telecom-linked stocks have outperformed. Bharti Hexacom gained 7%, Railtel rose 11%, GTL Infrastructure surged 26%, Sterlite Technologies jumped 10%, Avantel soared 32%, and Vindhya Telelinks was up 8%. Pure telecom plays, however, were muted: Bharti Airtel edged up 2.4%, Reliance Industries dipped 1.3%, and Vodafone Idea slipped 10%. Yet, for long-term investors, the story could be just beginning. 'Given the sector's critical role in shaping India's digital future, telecom stocks remain essential for a growth-oriented portfolio," said Vipul Bhowar, senior director, head of equities, at Waterfield Advisors. India's National Telecom Policy 2025 aims to double telecom product exports and attract ₹1.5 trillion ($18 billion) annually in telecom infrastructure investments by 2030. Additionally, the Telecom Act 2023—slated for full rollout by mid-2025—aims to simplify licensing, reduce compliance burdens, and foster participation from startups and SMEs, he explained. Bhowar also noted the government's plan to integrate terrestrial and satellite networks, which would open the door for foreign players like Jio-SES, Airtel's Eutelsat OneWeb, and Starlink, would reshape the telecom landscape. Not without challenges However, there are hurdles. Only a handful of companies in the telecom space can absorb large amounts of capital, according to Vivekanand Subbaraman, lead analyst at Ambit Capital. He pointed out that in 2020, most of the telecom fundraises came from the Reliance group. Since then, Reliance has not done much, while the Bharti group has actively raised capital, not just to fund business growth, but also through secondary transactions where early investors recycle their capital. 'Ultimately, the real investment opportunities are still concentrated in a few large players where capital keeps getting recycled," he remarked. Subbaraman sees potential beyond the core telecom players in the ancillary space, including tower companies and telecom equipment makers. However, he cautioned that most of these stocks are thinly traded, and would be less suitable for institutional investors looking to deploy substantial, non-speculative capital with predictable returns. 'That kind of money simply won't flow into some of these names," he said. Some market participants also warn that some of these lesser-known telecom-linked stocks may be only short-term plays, trading at valuations that appear stretched. For instance, Optiemus Infracom, with a market capitalization of over ₹5,000 crore, is currently trading at a whopping 199.5 times price to earnings ratio compared to its five-year average PE ratio of 74.97.
Economic Times
02-06-2025
- Business
- Economic Times
Smallcap stocks are doubling money like it's 2024 once again. Should you jump in?
Money is doubling fast and it's not in the Sensex or Nifty. Smallcap stocks are once again stealing the spotlight in Indian markets, posting a stunning rally that has investors rushing back into the segment. ADVERTISEMENT The BSE Smallcap Index has jumped 21% in just three months, comfortably outpacing the Nifty's 12% gain in the same period. Several individual names have delivered astonishing returns — NACL Industries has soared 192%, while Garden Reach Shipbuilders (GRSE) is up 147%. Stocks like Suven Life, Centum Electronics, Cosmo First, Bharat Dynamics, Zen Tech, and Mangalore Chemicals have either doubled or come close. The smallcap momentum is unmistakable and it's being powered by both macro conditions and strong flows, just like what Dalal Street saw in 2024. 'We firmly believe that over the long-term in a growth economy like India, smallcap stocks could outperform largecaps,' said Venugopal Manghat, CIO – Equity at HSBC Mutual Fund. 'Smaller companies tend to thrive in expanding economic cycles leading to higher earnings growth. The environment is conducive — low inflation, falling interest rates, improving liquidity and strong tailwinds in manufacturing, infrastructure and financialization.'A mix of economic recovery, liquidity inflows and earnings optimism is fuelling the rally. But alongside the euphoria, voices of caution are growing louder. Also read: Don't ignore smallcaps: HSBC MF CIO on where growth lies in FY26 ADVERTISEMENT 'Despite the sharp upmove recently, largecaps currently offer a better balance of earnings visibility and valuation comfort on a forward-looking basis,' warned Krishna Appala, Fund Manager at Capitalmind PMS. 'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error.'Indeed, valuations are no longer cheap. Trideep Bhattacharya of Edelweiss estimates that 'mid and small caps are trading at a 17% to 25% premium to their 10-year averages.' He emphasizes the importance of being selective: 'We advise that where there is a valuation premium, it must be matched with an earnings growth premium. Stocks with faltering growth but high valuations are in the penalty box.' ADVERTISEMENT Bhattacharya also advocates tailoring investment strategy to individual risk appetites: 'For conservative investors, we recommend flexicap funds. For moderate risk-takers, multicap funds. And for those with higher risk appetite and a 5–10 year horizon, midcap funds are ideal.'Fundamentals are showing signs of support. Some sectors posted better-than-expected numbers in the March quarter. 'There were a few pockets where Q4 results exceeded expectations,' said Sneha Poddar of Motilal Oswal. 'Raw material prices remained stable, global demand was supportive, and FMCG companies managed weaker urban demand with price hikes. Overall, demand wasn't as weak as feared.' ADVERTISEMENT Also read | Smallcap mania is back. But do Q4 earnings really justify the multibagger hype? Still, market veterans warn that the easy money may already be made. After a relentless three-month rally, the risks of overpaying in the smallcap space are rising, particularly in stocks where future earnings may not live up to the newly inflated real test now lies in sustainability. Will earnings keep pace with valuations? Will global liquidity remain supportive? And perhaps most importantly, will investors stay disciplined when the next correction hits? ADVERTISEMENT 'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error,' Apala said. For now, the fireworks in smallcaps are lighting up investor portfolios. But those looking to join the party now may need to tread carefully. In this market, growth and discipline, not just price charts, will separate the winners from the rest. (Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
02-06-2025
- Business
- Time of India
Smallcap stocks are doubling money like it's 2024 once again. Should you jump in?
Smallcap stocks are experiencing a resurgence, mirroring the gains seen in 2024, with the BSE Smallcap Index significantly outperforming the Nifty. While economic recovery and liquidity inflows fuel this rally, experts caution about stretched valuations and the need for selective stock picking based on strong fundamentals. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Money is doubling fast and it's not in the Sensex or Nifty Smallcap stocks are once again stealing the spotlight in Indian markets, posting a stunning rally that has investors rushing back into the BSE Smallcap Index has jumped 21% in just three months, comfortably outpacing the Nifty's 12% gain in the same period. Several individual names have delivered astonishing returns — NACL Industries has soared 192%, while Garden Reach Shipbuilders (GRSE) is up 147%. Stocks like Suven Life, Centum Electronics, Cosmo First, Bharat Dynamics, Zen Tech, and Mangalore Chemicals have either doubled or come smallcap momentum is unmistakable and it's being powered by both macro conditions and strong flows, just like what Dalal Street saw in 2024.'We firmly believe that over the long-term in a growth economy like India, smallcap stocks could outperform largecaps,' said Venugopal Manghat, CIO – Equity at HSBC Mutual Fund. 'Smaller companies tend to thrive in expanding economic cycles leading to higher earnings growth. The environment is conducive — low inflation, falling interest rates, improving liquidity and strong tailwinds in manufacturing, infrastructure and financialization.'A mix of economic recovery, liquidity inflows and earnings optimism is fuelling the rally. But alongside the euphoria, voices of caution are growing louder.'Despite the sharp upmove recently, largecaps currently offer a better balance of earnings visibility and valuation comfort on a forward-looking basis,' warned Krishna Appala, Fund Manager at Capitalmind PMS. 'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error.'Indeed, valuations are no longer cheap. Trideep Bhattacharya of Edelweiss estimates that 'mid and small caps are trading at a 17% to 25% premium to their 10-year averages.' He emphasizes the importance of being selective: 'We advise that where there is a valuation premium, it must be matched with an earnings growth premium. Stocks with faltering growth but high valuations are in the penalty box.'Bhattacharya also advocates tailoring investment strategy to individual risk appetites: 'For conservative investors, we recommend flexicap funds. For moderate risk-takers, multicap funds. And for those with higher risk appetite and a 5–10 year horizon, midcap funds are ideal.'Fundamentals are showing signs of support. Some sectors posted better-than-expected numbers in the March quarter. 'There were a few pockets where Q4 results exceeded expectations,' said Sneha Poddar of Motilal Oswal. 'Raw material prices remained stable, global demand was supportive, and FMCG companies managed weaker urban demand with price hikes. Overall, demand wasn't as weak as feared.'Still, market veterans warn that the easy money may already be made. After a relentless three-month rally, the risks of overpaying in the smallcap space are rising, particularly in stocks where future earnings may not live up to the newly inflated real test now lies in sustainability. Will earnings keep pace with valuations? Will global liquidity remain supportive? And perhaps most importantly, will investors stay disciplined when the next correction hits?'The divergence between earnings and valuations in the broader market calls for greater selectivity. The environment today rewards fundamentals and discipline over broad-based exposure — especially when mid and smallcap multiples leave little room for error,' Apala now, the fireworks in smallcaps are lighting up investor portfolios. But those looking to join the party now may need to tread carefully. In this market, growth and discipline, not just price charts, will separate the winners from the rest.: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
