 "Bharti Airtel, Idea seen offering best returns")
Bharti and Idea have lost a combined $1 billion in market value this month on concern billionaire Mukesh Ambani's Jio offering will pressure existing carriers to follow suit in a market where calls cost less than two cents a minute. About half the 38 analysts tracking the carriers have a buy recommendation on the shares, data compiled by Bloomberg show.
"You can make money when there's uncertainty and telecom is where there is maximum uncertainty right now," S Naren, executive director and chief investment officer at ICICI Prudential Asset Management Co, India's largest money manager with $29 billion in assets, said in an interview in Mumbai. "We see value in the sector."
Naren's funds held a total 41.74 million shares of Bharti, or 1 percent of the company's equity, as of August 31, data complied by Bloomberg show.
The phone companies' valuations have contracted in recent months as they braced for the entry of Jio as a new competitor. Bharti trades at 23.8 times reported earnings, compared with a multiple of 28 in July, which was the highest in a year. Idea is valued at 12.8 times, down from about 17 two months ago, the data show.
Jio's service, which began September 5, is free until December. Subscribers will subsequently pay as little as Rs 149 ($2.2) a month for data. Bharti Airtel, Idea and Vodafone Group Plc's unlisted Indian unit have cut data tariffs by as much as 67 per cent to retain customers. The operators together control two-thirds of India's mobile market by users.
"A new player spoils the party at the lower end; you can never attack market leaders initially," said Anand Shah, the chief investment officer at Mumbai-based BNP Paribas Asset Management India, which has $2 billion under management and advisory. "Jio is more fear than actual disruption. There's a lot of inertia to change" service providers, he said. The BNP Paribas Equity Fund had 10 per cent of its assets in Bharti and Idea at the end of August. Bharti rose 0.5 per cent to Rs 323.3 at 9:26 am in Mumbai, while Idea fell 0.5 per cent after climbing 0.7 per cent on Wednesday.
Competition could hinder bidding for airwaves by incumbents in next month's Rs 5.6 lakh crore ($83 billion) government auction of airwaves as operators preserve cash to service loans and ward off Jio. India's 12 wireless operators have more than $61 billion in debt, according to ICRA Ltd., a unit of Moody's Investors Service.
"Spectrum is the immediate raw material for telecom companies and without it you cannot grow the business," said Gopikrishna Shenoy, chief investment officer at SBI Life Insurance Co., the nation's second-biggest private insurer with $13 billion in assets. "We're never certain as to what price that raw material will come. That uncertainty bothers us."
Fund managers are betting the cost of securing airwaves will pay off as greater Internet access expands mobile-data usage in the world's second-largest smartphone market. Almost 90 per cent of 151 million broadband users access the Internet via mobile devices, according to the telecom regulator.
'4G Heavy Lifting'
Reliance Jio's fourth-generation only service is doing "the heavy lifting" for adoption of the technology in the country, BNP Paribas' Shah said.
"Even though data prices have come down, the number of devices and consumption has grown exponentially," Shah said. "Data is one of the biggest consumer stories in India."
Jio plans to draw 100 million users and expects data usage to reach 2.5 billion gigabytes a month on the network, Ambani told shareholders of his Reliance Industries Ltd. on Sept. 1. Jio had 1.5 million customers in its beta tests, Anshuman Thakur, the company's head of strategy, told reporters July 15.
"The market cap of telecom companies in the developed countries is many times that of Indian companies," ICICI Prudential's Naren said. "Our demographic profile is favorable for the sector's growth as compared to developed economies. The telecom sector could give you the opportunity to make money over the long term."