2G-linked scrips take a battering

The Supreme Court’s decision to cancel 122 telecom licences issued after January 2008 impacted stocks of many listed companies with direct or indirect exposure to the telecom sector.

Immediately after the order was pronounced, the benchmark Sensex dropped by close to 200 points from day’s high to 17,308.28, as its components from the banking space, including State Bank of India (SBI) and ICICI Bank, fell sharply.

However, after more details on the judgment emerged, the market and some banking and telecom stocks recouped their losses. The Sensex closed 0.76 per cent higher at 17,431.85, while the 50-share Nifty gained 0.65 per cent to end the day at 5,269.9. Telecom, banking and other stocks related to the ruling were under the spotlight.

Reliance Communications (RCom), Unitech, the joint venture partner in Uninor, and Tata Teleservices (Maharashtra) fell 3.5, 7 and 2.8 per cent, respectively. Other stocks linked to the 2G controversy also saw a sharp drop in their stock prices initially. DB Realty and Videocon Industries ended 1.4 and 1.5 per lower, respectively. Telenor ASA, the Nordic region’s largest phone company, fell 4.74 per cent on the Oslo Stock Exchange.

Stocks in Bharti Airtel and Idea Cellular gained on expectations that the telecom sector would see consolidation and improvement in margins. India’s largest telecom player, Bharti Airtel, logged its biggest percentage gain in almost 19 months. It closed 6.88 per cent higher at Rs 385.95. Idea Cellular, which had dropped by 10 per cent after the verdict, ended 2.7 per cent higher at Rs 95.85.

The court’s decision does not affect any licence owned by the three largest players in the market — Bharti Airtel, Vodafone and RCom.

“The verdict will have a positive impact on the telecom sector. A source of great controversy has been removed,” said G V Giri, telecom analyst at IIFL. “Bharti Airtel, Idea and RCom should benefit because of the reduced competitive pressure. But the positives have already been factored in the price,” he added.

Unlike other telecom markets, India is fiercely competitive, with more than a dozen players operating in a circle.

“As there will be consolidation, existing players will have better pricing power. There could also be an opportunity to buy the infrastructure of players whose licences are revoked, which will be up for distress sale,” said Ambareesh Baliga, COO of Way2Wealth.

Fitch Ratings said in a release the ruling would favour large players.

“The decision is likely to fall disproportionately on smaller operators, strengthening the hand of larger players — Bharti Airtel, Vodafone and RCom,” it said.

Shares of financial companies also remained under pressure, as investors were concerned about the exposure to telecom companies, whose licences were cancelled. IDFC slumped 4.7 per cent to Rs 1,31.4. State Bank of India, which fell over five per cent initially, ended 0.2 per cent lower at Rs 2,072.65.