Power & Infra companies' stocks are riding the Modi-wave

What a run we have seen, both before the Exit Polls result & after it!! The initial part of the rally was limited to large-cap stocks only. But over the last 2-3 days we have seen several mid-cap & small-cap stocks rally big time, hitting upper circuits regularly. Most of these stocks are from the Infrastructure & Power sectors. Many of these companies have been struggling on the business front over the last few years. Hence their stocks were heavily beaten down, some even to penny stock levels. But it seems now they have got a new lease of life and they are back from the dead. Have a look at the chart below where you can see the sudden jump in stock prices of 4 such companies.

These are just 4 companies here, but I think hundreds of such companies have seen their share prices rally anywhere between 20% to 100% over just the last one week to 10 days. All of them are flying away on HOPE. Yes, even I am hoping for things to improve for our country as a whole, which will give big opportunities for companies from various sectors, especially those that are required from the nation building perspective. But let me warn you, things will not change overnight. It will take atleast 6 to 12 months for things to get moving. There are lot's of things that Modi & his would-be Finance Minister will need to look into before they start planning & implementing things that would give momentum to large projects from Power & Infrastructure sector. Remember that our country is running a huge Deficit Budget. We will have to curtail expenditure on certain non-productive areas and divert that money to areas which will prove to be productive.

In short I just wish to warn everyone that one shouldn't get exuberant and invest blindly into stocks that are flying away. When all this euphoria settles down, things will be compared in terms of actual improvement in performance of companies & their corresponding valuations. Wait for a correction to Invest fresh money. And if one is already invested in any of these 'flying' companies, then do think of booking atleast partial profits and then reinvest during the next correction. You might get the same stuff at 20% or 30% lower prices in some time.

Telecom: Data revenue growing strong, but for how long?

The Jan-Mar'2014 quarter by-far has been the best quarter for all Telecom operators in terms of growth in Data traffic on the wireless networks. Bharti Airtel, Idea Cellular & Reliance Communications announced their respective Quarterly results recently. Bharti Airtel's Data volumes jumped 20% Q-o-Q from 38.9 mn GBs to 46.7 mn GBs, while Idea Cellular's volume jumped 31% Q-o-Q from 20.8 mn GBs to 27.3 mn GBs. RCom continues to be the largest Wireless Data Service provider with volume of 50.25 mn GBs, a growth of 20% compared to 41.84 mn GBs in the previous quarter. Since all these three large operators have experienced their best growth in terms of Gross Data Volumes in the latest quarter gone by, we can safely assume that the same could be the case with the entire industry or atleast most of the operators.

In terms of Revenues from Wireless Data business, all these operators have posted between 10% to 13% Q-o-Q Growth and infact this business is now the sole or the most important growth driver for all operators. Most players are experiencing stagnancy or very low incremental growth in revenues from the traditional voice business. India's monthly data consumption has probably just started it's growth story. Over the last 2 years, the Smartphone penetration has been increasing at a very fast pace. During the same period, the operators have expanded their 3G network coverage, increased the cost of using 2G data service, which has pushed more & more users to upgrade to 3G service. The Data speeds on the 3G networks being much faster, the overall consumption from every such user has started shooting up. As more & more users start using the 3G service, the consumption is going to keep rising.

Going by the information these operators have declared, my estimate says that we Indians could be consuming somewhere about 60 to 70 mn GBs per month currently & generating about Rs.1500 crores in monthly revenues for Wireless Data service providers. Even by conservative estimates, the monthly Data consumption could double over the next 12 months, while the revenues from it could grow somewhere around 70%, i.e. it could be around Rs.2500 crores per month. Now the question is: Who is going to get how much share of this incremental Rs.1000 crores in monthly revenues. My guess is that the operators with the widest 3G coverage in Metro & Category A circles will gain the most. Bharti Airtel, Vodafone, Idea Cellular, RCom, TTSL, Aircel could be the biggest beneficiaries in that order.

But an even bigger question is: What happens when Reliance Jio launches it's 4G service, sometime in the third quarter of this fiscal? Reliance Jio is expected to initially target the Metro circles and several other large cities across the country, where Data consumption is on the higher side. Reliance Jio will not just eat a portion of the incremental Data consumption market, it will even pull a portion of the existing market. Going by the scale of investments that RelJio is doing, I am sure it must be targeting to garner 30% of incremental Data consumption market & about 10% of the existing market over the initial 12-18 months of launch of it's 4G service. RelJio's impending launch is what could be giving nightmares to some of the top bosses of all large telecom companies in India. It is not just the Wireless Data business, RelJio could even be targeting to get a portion of the voice business, riding on the high-capacity internet backbone. RelJio has acquired substantial chunk of 1800 MHz spectrum in 14 circles. There is only one major problem though. Lack of availability of devices running on 4G LTE technology at reasonable prices. But there are millions of Smartphones, Tablets & Laptops across the country that can access Wi-fi signals. So there is one possibility that RelJio could use the 4G LTE network as the backbone and use Wi-fi as the front end technology to acquire customers. They have already committed billions of dollars of investment towards this business and I am sure that their plans will be to grow aggressively right from Day-1.

Times are going to be very exciting in the Telecom space from the Q3 of current fiscal. All the current operators must be getting battle-ready to fight not just the war for Growth, but some of the operators could even be fighting for Survival !!!