Telecom stocks edge higher as EGoM okays telecom M&A rules

Key benchmark indices edged lower in early trade on weak Asian stocks. The barometer index, the S&P BSE Sensex, was down 51.72 points or 0.25%, up close to 15 points from the day's low and off close to 35 points from the day's high. The market breadth, indicating the overall health of the market, was positive. In the foreign exchange market, the rupee edged lower against the dollar in early trade as crude oil futures rose. Government bond prices dropped in early deals as crude oil futures rose.

Telecom stocks rose in early trade after a panel of ministers on Tuesday, 3 December 2013, approved crucial changes to the rules on mergers and acquisitions in the fragmented telecom industry, raising the cap on the market share of a merged entity in a circle to 50% from 35% earlier.

Asian stocks fell on Wednesday, 4 December 2013, with investors awaiting influential US job data later this week that may provide further evidence as to when the Federal Reserve will reduce stimulus to the US economy.

At 9:32 IST, the S&P BSE Sensex was down 51.72 points or 0.25% to 20,803.20. The index lost 65.48 points at the day's low of 20,789.44 in early trade. The index declined 15.47 points at the day's high of 20,839.45 in opening trade.

The CNX Nifty was down 10.20 points or 0.16% to 6,191.65. The index hit a low of 6,184.45 in intraday trade. The index hit a high of 6,196.55 in intraday trade.

The market breadth, indicating the overall health of the market, was positive. On BSE, 505 shares rose and 430 shares dropped. A total of 42 shares were unchanged.

Among the 30-share Sensex pack, 21 stocks fell and rest rose. ICICI Bank (down 1.38%), Bajaj Auto (down 0.98%) and HDFC (down 0.72%) declined.

Telecom stocks rose in early trade after a panel of ministers on Tuesday, 3 December 2013, approved crucial changes to the rules on mergers and acquisitions in the fragmented telecom industry, raising the cap on the market share of a merged entity in a circle to 50% from 35% earlier. Bharti Airtel (up 1.32%), MTNL (up 1.56%) Tata Teleservices (Maharashtra) (up 1.46%) and Reliance Communications (up 0.72%) gained.

The rule change could trigger a much needed consolidation in the country's crowded telecom sector. "The M&A rules have been approved," Communications Minister Kapil Sibal told reporters after a meeting of the empowered group of ministers, headed by finance minister P Chidambaram. The Cabinet is expected to meet shortly to ratify the changed rules. Under the new guidelines, an operator will be entitled to only one block of spectrum which had been allotted at an administrative price, or without an auction process, Sibal said. The merged entity would need to pay the market price for any additional bandwidth beyond that one block.

While the three-year lock in period clause before a sale of equity for a license holder continues, the telecom department will seek legal opinion on whether telecom operators can merge within that period. A merger would entail an equity dilution and not a sale of equity.

The panel also decided that a total of 403 Mhz of spectrum be auctioned in the 1800 Mhz band in the auctions scheduled for January. That amount of spectrum would be worth around Rs 36000 crore, as per the price cleared at the previous EGoM meeting. On Tuesday, the government also decided to allow a merged entity to hold up to two blocks of 3G and broadband wireless access (BWA) spectrum as against one block each currently. It has also decided to retain the spectrum cap of a merged entity at 25% of total airwaves assigned for access services and 50% of the bandwidth assigned in a given band, by way of auction or otherwise, in the concerned service area.

Idea Cellular fell 0.14%, with the stock extending Tuesday's losses. The company early this week said it has received a communication from Department of Telecommunication (DoT), Ministry of Communications & IT, on imposition of financial penalty of Rs 600 crore for alleged violation of terms and conditions of CMTS/UAS licenses while acquiring erstwhile Spice Communications. Idea Cellular said that the company is preparing to take necessary steps to challenge the DoT letter at appropriate forum.

Bank of Baroda fell 0.06%. The state run bank's board of directors at its meeting held on 3 December 2013 considered and approved issue of such number of equity shares aggregating upto Rs 550 crore on preferential basis to Government of India. The announcement was made after market hours on Tuesday, 3 December 2013.

In the foreign exchange market, the rupee edged lower against the dollar in early trade as crude oil futures rose. The partially convertible rupee was hovering at 62.49, compared with its close of 62.36/37 on Tuesday, 3 December 2013.

Government bond prices dropped in early deals as crude oil futures rose. The yield on 10-year benchmark federal paper, 7.16% GS 2023, was hovering at 9.0892%, higher than its close of 9.069% on Tuesday, 3 December 2013. Bond yield and bond prices are inversely related.

The Organization of Petroleum Exporting Countries (OPEC) holds a meeting in Vienna on today, 4 December 2013, to decide production quota. The OPEC is expected to assess the impact of rising US oil production and the potential return of Iranian oil barrels to the market. OPEC countries will have to accommodate any additional oil supply into the market without changes to the cartel's overall production ceiling of 30-million-barrels-a-day, Venezuela Oil Minister Rafael Ramirez said on 28 November 2013.

Markit Economics will unveil the result of a monthly survey on the performance of India's services sector for November 2013 today, 4 December 2013. The HSBC Services Purchasing Managers' Index (PMI), compiled by Markit, rose to 47.1 in October from 44.6 in September, which was the weakest reading since April 2009.

The Reserve Bank of India (RBI) announces next Mid-Quarter Review of Monetary Policy for 2013-14 on 18 December 2013. The Third Quarter Review of Monetary Policy for 2013-14 is scheduled 28 January 2014.

On the political front, Delhi goes to polls today, 4 December 2013. Polls for assembly election in Chattisgarh, Rajasthan, Madhya Pradesh and Mizoram are already over. Counting of votes for assembly elections in Delhi, Madhya Pradesh, Chhattisgarh and Rajasthan takes place on 8 December 2013. Counting of votes for assembly elections in Mizoram takes place on 9 December 2013.

The outcome of the assembly elections could provide clues as to which party comes to power in the national elections that are due by May 2014. Many investors are hoping the state elections will show strong support for the Bharatiya Janata Party whose prime ministerial candidate Narendra Modi is considered a pro-business leader.

The winter session of parliament begins tomorrow, 5 December 2013. The session will end on 20 December 2013. It will have 12 sittings in which government is likely to introduce a bill to create a separate Telangana.

Asian stocks fell on Wednesday, 4 December 2013, with investors awaiting influential US job data later this week that may provide further evidence as to when the Federal Reserve will reduce stimulus to the US economy. Key benchmark indices in Indonesia, Hong Kong, Japan, Singapore and South Korea were down 0.15% to 2.05%. Key benchmark indices in China and Taiwan rose 0.35% to 1.27%. Fed's bond-buying program has been a source of liquidity for most Asian and emerging markets this year.

Chinese President Xi Jinping said the environment for economic and social development next year isn't optimistic.

US stocks declined for a third day on Tuesday, 3 December 2013, as investors assessed reports on car and retail sales before US jobs data later this week that may offer clues on when the Federal Reserve will reduce stimulus.

Investors are keeping a close watch on economic data in the United States as the Federal Reserve monitors the pace of recovery to gauge when it will begin to reduce monetary stimulus for the US economy, which has been aimed at encouraging growth. The US government will release the influential US non-farm payrolls data for November 2013 on Friday, 6 December 2013. The Fed has said improvement in the labor market is a key factor in its policy assessment.

The Federal Open Market Committee (FOMC) holds a two-day policy meeting on interest rates in the United States on 17-18 December 2013. The US central bank currently buys bonds worth $85 billion a month in a bid to hold interest rates low and encourage economic growth in the world's biggest economy. Minutes of the Fed's October meeting released on 20 November 2013 showed officials may reduce their $85 billion a month of bond buying if the economy improves as anticipated.

Brazil's economy contracted in the third quarter for the first time since early 2009, falling short of expectations yet again as plunging investment underscored eroding confidence in what was recently one of the world's most promising emerging markets. The economy shrank 0.5% between July and September from the prior three months, government statistics agency IBGE said on Tuesday.

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