Share prices of telecom operators Bharti Airtel and Idea Cellular surged in otherwise weak trade on Friday after Bank of America Merrill Lynch (BofA-ML) upgraded its ratings on both the stocks to ‘buy’ from ‘neutral’ citing a ‘positive’ outcome in the 2G auction this week. Bharti shares rose 3.5 per cent to close at Rs 301.10 on Friday, while Idea ended marginally higher at Rs 95.15 after rising as much as 2.8 per cent earlier in the day.
The broking firm expects further upsides in these stocks on the grounds they underperformed in the last 12 months, strong earnings growth expectations and favourable policy decisions.
Bharti shares have gained for the fourth straight day after the recent 2G auction attracted lesser-than-targeted demand, as prices were seen to be steep. Investors are relieved that the companies have not been weighed down further with additional debt. The government raised Rs 9,400 crore from the 2G spectrum auctions versus a target of Rs 28,000 crore if available spectrum had been sold at the reserve price BofA-ML raised its price target for Bharti to Rs 340 and Idea to Rs 105.
Traders also kept a close watch on a key technical hurdle for Bharti that it failed to breach today. Bharti shares closed just below the 200-day moving average (DMA) of around Rs 302 on Friday. Idea is way above its 200 DMA of Rs 84. If a stock trades below the 200 DMA, it means new buyers of indices or stocks are not willing to pay more than the average price of the previous 200 days.
Technical analysts are more optimistic about Idea’s near-term prospects on the bourses than Bharti’s because it is above the 200-DMA.
“Even if Bharti manages to breach the 200 DMA, it faces a steep resistance at Rs 337, which is the 200-week moving average,” said AK Prabhakar, senior vice president, Anand Rathi Financial Services.
BofA-ML said it has not changed earnings estimates of Bharti and Idea after the 2G auctions, but higher tariffs could be triggers.
“We have not built any tariff hikes into our forecasts, but the auction reaffirmed our recent view that competitive pressures are moderating,” the broking firm said. “Large tariff hikes may be deferred in anticipation of policy softening but the floor for tariffs could rise given that players like Telenor have won relatively expensive circles and industry seems unanimous about the need for better price economics,” it said.