Don't rush to buy 2G-related stocks, caution analysts

The verdict would not change the fortunes of these stocks, say analysts

Shares of companies entangled in the 2G spectrum scam such as Unitech, Reliance Communications (RCom), Sun TV and DB Realty ended 4-20 per cent higher on the NSE, after a CBI court acquitted all the accused, including former telecom minister A Raja, Dravida Munnetra Kazhagam member Kanimozhi and corporate executives like Swan Telecom’s Shahid Balwa, Unitech’s Sanjay Chandra and the Essar group’s Ruias in the scam.

Most of these stocks had gained as much as 20 per cent in intra-day deals. In comparison, the benchmark indices — the S&P BSE Sensex and the Nifty50 — ended the day marginally negative at 33,756 and 10,440, respectively.

Analysts, however, remain cautious and suggest investors not buy into the rally. The verdict, they said, would not change the fortunes of these stocks.

“The verdict triggered a relief rally in these counters. Going ahead, the overhang as regards the 2G tangle seems to be over for these stocks and they will more be a play on fundamentals. Investors should not jump in right now,” said Rikesh Parekh, vice-president for institutional, corporate broking at Motilal Oswal Securities.

Analysts remain bullish on Sun TV, which they feel is on a better fundamental footing than the rest of the listed firms that were entangled in the scam.

“Sun TV is in a different business than telecom. It has one of the highest earnings before interest, taxes, depreciation and amortisation (Ebitda) margins in the core segment the company operates in. Even an adverse judgment would not have impacted its business. RCom and Unitech operate in an industry that is going through a rough patch. A spike in these counters should be used as an exit opportunity,” said A K Prabhakar, head of research at IDBI Capital.

Most of these stocks, along with Tata Teleservices (Maharashtra) that were entangled in the Rs 1.76-lakh-crore 2G spectrum allocation scam, have not been able to regain their lost glory since August 2007, when the government (Department of Telecom) initiated the process of allotment of 2G spectrum along with Unified Access Services licences.

“Of the lot, Sun TV is still a good bet. I will not advise investing into Unitech even after the 2G verdict. RCom, on the other hand, is facing asset sale. So in that sense, the downside can be limited from here. It is advisable to stay away from both these stocks for now,” advised Krish Subramanyam, co-head for equity advisory at Altamount Capital.