Several equity schemes reduce exposure in August
Mutual fund managers seem to share the Street's pessimism on India's largest telecom company, Bharti Airtel, after the company reported a decline in net profit for the fifth straight quarter during April-June.
On August 8, when Bharti announced a 36 per cent decline in net profit, its shares tanked seven per cent in a single trading session. More, through the month, the counter remained under pressure and touched levels of as low as Rs 238. On Monday, though, its shares gained 2.3 per cent to close at Rs 260.45 on the Bombay Stock Exchange, on a day when benchmark indices traded flat.
The stocks of Bharti have been among the prime holdings of several fund houses. Equity fund managers have been maintaining that India is a consumption story and they could not do away with the telecom sector as far as Bharti was concerned. However, the restructuring of portfolios which followed in August suggested fund managers had, "for the time being", lost some love, if not all, for the telecom major.
For instance, several schemes of Franklin Templeton reduced their exposure in Bharti in August by a little over 100 basis points compared with their holdings in July. Similarly, other fund houses such as Sundaram, Tata MF, DSP BlackRock and IDFC MF, among others, preferred to prune exposure on the counter.
Franklin India Bluechip fund had an investment of around Rs 325 crore solely in Bharti at the month's start. This dropped to Rs 275 crore at the end of August.
"Competition is indeed cut-throat in the telecom space. This is impacting players' profits, including that of Bharti. On top of it, issues related to spectrum are all acting as deterrents for me to hold on to a sizeable chunk in Bharti, the only telecom stock I had conviction in," explains the chief investment officer of a foreign fund house, who had always kept Bharti among his top five holdings. But, he was quick to add, he might not afford to avoid Bharti in the long term.
According to Ambareesh Baliga, chief operating officer (COO) at Way2Wealth Securities, "It is true for any industry; when it matures, profits and growth get moderated. Till 2007, the telecom sector saw boom and grew in only one direction. But things have changed. Over the last few years, the sector is under-performing. For the time being, maybe for two years from now, the sector may not do well but at such dips, these present an opportunity to buy."
He adds that once Bharti's Africa operations stabilise and start contributing to overall performance, the counter will benefit. "One must understand that the telecom story is here to stay in India, as one cannot do business without communications," states Baliga. According to him, a level of Rs 240 offers a strong support for Bharti and it cannot be breached easily.
Riding high on the crest of the reforms wave, the markets touched their highest closing levels since July 2011 during the week under review ...