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THE INDEX
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Rate strategy
Prashant Kothari & Sachchidanand
Shukla
Nobody knows well the truism that the ‘consumer is
king’ better than the Indian telephone user. Mobile phone rates
have been on the decline since two years. Next was Bharati Telesonic,
India’s first private national long distance player, which cut
mobile to mobile STD rates by around 50 per cent.
Bharat Sanchar Nigam Ltd (BSNL), the state run long distance
player, also followed the suit by announcing STD rate cuts in
the range of 50-60 per cent. And now is the turn for the MTNL
to bring a smile on the faces of thousands of consumers. The
local phone operator in Delhi and Mumbai, has announced the
arrival of limited mobility in Mumbai from the last week of
January, 2002.
The MTNL scrip fell a bit on the announcement of STD rate cuts
on mobile to mobile calls by Bharti Telesonic a few days back
due to fears of consumers shifting to mobile operators for making
STD calls.
Analysts had expected BSNL to retaliate. However, the rate cuts
instituted by BSNL are much bigger than expected. This move
is expected to benefit MTNL as the fear of consumers shifting
to mobile to mobile calls would not be present anymore.
However, the rate cut may also drive down the operating income
and net profit of MTNL. The current revenue sharing agreement
between BSNL and the originator of the call ((MTNL) is 95:5
of the cost of the call. Thus MTNL would now get 5 per cent
of a lower amount than was available previously.
The union minister for information technology & communications
Pramod Mahajan says the rate cut, would, of course, drive up
volumes but that would only be in the range of 50-60 per cent.
The introduction of limited mobility is likely to attract the
vast middle class segment of Mumbai what with free incoming
calls and outgoing calls charged at only Rs 1.2 per three minutes.
Mobile operators on the other hand charge Rs 1.99 per minute
(standard plan) on all calls. If this service becomes popular,
then MTNL would benefit immensely and may even convert mobile
phone users into using its limited mobility service. However,
it may not be a smooth ride for MTNL as mobile operators may
slash their rates again to keep their market share intact.
Investing community
The last year left many an investor wise. ‘Return of Investment’
as against ‘Return on Investment’ became their prime concern.
Early during the year, pink paper columns by experts proclaiming
the irrelevance of valuations still found takers. Analysts were
still enamoured of absurd p/e ratios and rising productivity
in their favorite sectors. Enron fiasco is only one of ‘oversight’
or irresponsible investment case. The meltdown in the markets
has brought to the fore key perspectives though. Terms like
‘momentum investing’, ‘day trading’ and ‘long term investing’
or ‘value investing’ have been of little use. They only confused
investors. Even tools of analysis witnessed a change bringing
back the ‘P/E ratio and ‘Book Value’ instead of the ‘Price Earnings
to Growth (PEG)’ ratio that had become a vogue earlier.
The Sensex shed nearly 700 points to end the year 2001 at 3262
over the previous year. HLL gained the top slot with a market
cap of Rs 47,780 crore overtaking Wipro. Similarly Reliance
grabbed the third spot relegating Infosys to the fourth spot.
While Zee and HCL Technologies, ousted from the top 10, pointed
to investor apathy towards unrealistic valuations of the infotech
media and communication sectors.
Yet, markets, as of now, offer plenty of opportunities for the
long term or value investor. Owing to recession and uncertainty
many stocks are languishing despite strong above-average fundamentals
and attractive p/e. The current market turmoil has left the
Sensex tottering at 3200-300 levels with p/e in a low band offering
buying opportunities, especially in the mid and small cap segment
that would be an ideal bargain hunting ground despite the depressed
outlook for the next couple of quarters.
Business models now barely span a couple of months thanks to
rapid changes in technology fuelling volatility. Consequently,
making a call on the state of affairs of a company 10-15 years
hence is almost impossible. The best bet for an investor therefore,
would be to assess his risk appetite and make periodic assessments
of his portfolio accordingly. Only disciplined investing and
portfolio diversification may offer solace in the days ahead.
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