Telcos decline 2-3% on Trai order, Rel Com bucks trend

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Mumbai | Updated: October 17, 2015 5:13:06 AM

Idea Cellular lost 1.44% during the session, while Bharti Airtel declined 0.46%.

Stocks of telecom companies declined nearly 1% on Friday after the sector regulatory, Telecom Regulatory Authority of India (Trai), issued a directive asking telecom services providers to compensate users for dropped calls. Stocks of telecom firms opened under intense selling pressure and lost 2-3%. However, during the last one hour of trading, these stocks partially recovered due to short covering and strong recovery in the broader markets.

Idea Cellular lost 1.44% during the session, while Bharti Airtel declined 0.46%. Scrip of state-owned MTNL closed down 0.54%, while Tata Communications lost 0.45%. Reliance Communications was the only exception, with the stock climbing 4.35%.

As per the new directives, telecom operators will have to compensate consumers by Re 1 per dropped call with effect from January 1, 2016. Trai  has, however, fixed a cap on the compensation to maximum of three calls per day. The regulator said it is of the view that the mandated regime would provide relief to customers from the menace of call drops to some extent and spur service providers to improve quality of service.

telecom-companies

The directive of Trai  comes after Prime Minister Narendra Modi and various top officials raised concerns over the call drop issue. Two months ago, Modi conducted a high level meeting where he observed that the call drop problem directly affected the common man.

Telecom scrips have been under selling pressure since the beginning of Q2FY16. Shares of Bharati Airtel have lost more than 16% during the period, while Idea Cellular has been down by more than 14%.

Kotak Institutional Equities observed in a note to investors that Q2FY16 would be a tepid quarter for the telecom sector, as voice and data volumes are going to witness a modest slowdown, thereby impacting the revenue growth of the companies.

“We expect voice traffic decline of 3-4% q-o-q while flat voice RPM and data revenue growth would be in low-double digits. Bharti Airtel and Idea would see a decline in the margins q-o-q,” said Rohit Chordia, associate director, Kotak Institutional Equities.

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