Telecom stocks were the top gainers in the BSE Sensex, which rose 148.99 points to close 0.8 per cent higher on Monday. Telecom stocks were in the limelight after Bharti Airtel increased rates last week for select service.
Top cellular carrier, Bharti Airtel saw an increase of Rs 22.05 or 5.37 per cent over its previous close. Leading the upward surge in telecom stocks were the stocks of Reliance Communications, which skyrocketed 14.91 per cent higher.
The stock closed at Rs 107.50; the monthly high in intra day trade being Rs 108.50.
According to a report by Goldman Sachs, the outperformance of Bharti was led by the improvement in regulatory environments such as issuance of licence cancellation notices to new entrants, Bharti raising tariffs and reducing competitive pressures with new operators and media reports on a potential IPO of Bharti Infratel.
Recently, Bharti and Vodafone announced a 20 per cent hike in tariffs for on-net calls (on-net traffic accounts for 25 to 30 per cent of the total traffic). Idea, which has cut its promotions, is expected to follow with price hikes, according to a report by Bank of America and Merrill Lynch.
Idea Cellular also closed 7.97 per cent higher, at Rs 92.10 after striking a 52-week high in intra day trade of Rs 94.35.
Regulatory scrutiny
The recent hike of 20 per cent is similar to the 20 per cent call and SMS hike in tariffs in 2007. The hikes did not sustain and reportedly received regulatory scrutiny from TRAI and MRTPC. A report by Bank of America and Merrill Lynch estimates the hikes to sustain for the next two to three quarters before regulatory intervention or renewed competition which could drag down prices again.
The scenario today is very different from that of 2007 and today there are around seven to eight operators so regulatory intervention is not a matter of concern. New customers will be most affected by this increase in tariff rates. Although there is a possibility of volume drop, the absolute volume will increase, say analysts.