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Saturday, December 10, 2011

Can telecom sector stocks be contrarian bets?

Not much has changed in my bearish views about the telecom sector stocks since I wrote the previous post a little over a year back. The Sensex and Nifty are in bear markets – so are most of the telecom stocks. But there are always a couple of stocks in every sector that flow against the tide. The telecom sector is no exception. But the answer to the question is: No.

The 2G scam has not yet reached a denouement, except that the former telecom minister and his cohorts are still enjoying free lunches, but behind bars. Those who bid too high in the 3G auctions tried to cut their losses by circumventing auction conditions by sharing resources. The headwinds in the sector remain strong.

Horizontal dotted lines on the two year bar charts below represent price levels at the time I wrote a bearish post back in Oct ‘09.

MTNL

MTNL_Dec0911

The MTNL stock chart shows why the government should concentrate on making policies that enable businesses to prosper, but not be in business. A monopoly in the lucrative Delhi and Bombay markets couldn’t help the company to gain any competitive advantage. The stock is falling further in a bear market. Avoid.  

Bharti Airtel

Bharti_Dec0911

Bharti Airtel is the leader in the telecom pack. After dropping to a low of 254 in Jun ‘10, the stock had been in an up trend that reached a peak of 445 in Aug ‘11. The bears decided enough was enough. The stock has fallen below its 200 day EMA, the blue up-trend line and is just about hanging on to the two years old price level of 359. A drop to 325 is possible. Hold.

Reliance Communications

RelCommi_Dec0911

The Reliance Communications stock has lost 75% from the two years old level of 282 to its recent low of 69 – and may drop lower. The only hope for shareholders (those poor souls who are still hanging on) is if ‘big brother’ bails out ‘little brother’. Do not touch with a 10 ft pole.

Idea Cellular

Idea_Dec0911

In my previous post, Idea Cellular was recommended as a contrarian play, and is the only stock to make some gains in the past two years. Though technically in a bull market, the good times seem over for now. Book profits, or hold with a strict stop-loss at 80.

Tata Teleservices (Mah.)

TataTele_Dec0911

Tata TeleServices is at a critical support level of 14. All efforts at rallies have been met with selling by bears. If 14 is broken – and the probability is high, it may become a penny stock. Avoid.

Subex

Subex_Dec0911

The stock of Subex had made a good recovery and was forming the handle of a possible cup-and-handle bullish pattern. Only, the handle turned into the first leg of a down trend that has pushed the stock price deep into a bear market. The stock has lost 70% from its Nov ‘10 high of 95 to the recent low of 28. THe market has punished companies with high debt. Avoid.

OnMobile Global

OnMobile_Dec0911

The OnMobile stock has been pummeled out of shape – an example of how sentiments can play havoc with a fundamentally strong stock. For the past few months, the stock has been consolidating within a rectangular band between 54 and 73. There is a good possibility of the stock trying to form a bottom here. This can be a contrarian bet, but with a strict stop-loss at 52.

Geodesic

Geodesic_Dec0911

The Geodesic stock was a favourite of small investors in the previous bull market – thanks to the presence of the ‘RARE’ bull. But I could never figure out how they were making money (in spite of working in the IT industry for almost 30 years). The company has spun a web of subsidiary companies – many of which are located in tax havens. “Daal may zuroor kuchh kaala hai”! THe stock is falling deeper into a bear market. Stay far away.

Tanla Solutions

Tanla_Dec0911

Tanla was falling deep inside a bear market when I looked at it a year back. The chart is an example of how a stock which has already fallen a lot can fall much further. It has become a penny stock. Avoid.

MRO-Tek

MROTek_Dec0911

MRO Tek has also turned into a penny stock in spite of being around for more than two decades and being in the growing telecom and networking hardware business. Those who trade in this stock are either very brave or very foolish. Volumes indicate that their numbers are quite small. Don’t touch it.

Related Post

Should Indian investors switch out of Telecom Sector stocks?

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