Fund managers raise telecom exposure despite Jio foray

Equity fund managers with exposure to the telecom space don't seem to be too bothered by Reliance Industries telecom foray. Most fund managers have continued to hold on their telecom investments, while some are using the recent sharp correction as buying opportunity.

Reliance Jio's telecom entry is seen by many as disruptive for the $22-billion revenue telecom sector.

Several MF schemes with exposure to Bharti Airtel and Idea Cellular were seen increasing their allocations to these stocks. Bharti, in particular, continues to enjoy fund managers confidence. The stock, which lost nearly 12 per cent over the last one-and-a-half-month, has remained among the top-ten holdings of several equity schemes. Put together, a total of 210 equity schemes have put in Rs 3,884 crore in Bharti as on August 31. A month earlier, the allocated amount was Rs 4,239 crore. Thanks to the correction in the counter, the assets under management (AUM) took a hit.

For instance, schemes like Franklin India Prima Plus, ICICI Prudential Dynamic, Franklin India Bluechip Fund and ICICI Prudential Balanced Fund, among others, which have sizeable investment in Bharti, increased their holdings in the stock in August.

"The correction in telecom stocks around Jio launch, despite buoyant market, was an opportunity and we added some more quantity in our portfolios. Of course, coming quarters may be difficult for Bharti and Idea; but they may bounce back," said chief investment officer (CIO) of a foreign fund house who has been bullish on telecom.

Meanwhile, brokerages have cut down their targets for Idea and Bharti. For instance, a report from Religare, said, "(The development) would be ARPU dilutive for incumbents Idea and Bharti, as they derive 75-80 per cent of revenue from voice. Also, usage-oriented data revenue will mean an extended capex cycle. Stay cautious on operators."

RJio has launched ten monthly plans starting as low as Rs 149. Following which brokerages have cut stock price target of Idea for March 2017 from Rs 104 to Rs 95 while for Bharti, the new target given is Rs 325 against Rs 335 till March 2017.

"Fears that customers will be quick to port from incumbents to RJio are stretched. Perhaps, this is the main reason behind weak sentiment in telecom stocks. But we need to be mindful of the India customers' behaviour which is quite sticky to an existing brand and network. As of now, I am keeping in neutral view on telecom. I neither sold nor added more. But, current levels of Idea and Bharti are quite attractive and further fall from hereon looks unlikely," explains a senior fund manager at a large fund house managing schemes wherein telecom stocks are allocated over five per cent of total assets.

On Wednesday, stocks of Bharti closed at Rs 319.30, up 0.41 per cent against its recent lows of Rs 302 on the day RJio announced its launch. Idea Cellular, on the other, was up a little over one per cent at Rs 83.65 against the recent lows of Rs 80.65.