Telecom Stocks Bleed on D-Street as Ambani’s Datagiri Punches Them Down

Mumbai: The launch of Reliance Jio is a game changer for some and gamble for others, but a panic day for telecom stocks on Dalaal Street. The disruptive datagiri unleashed by Mukesh Ambani, CMD of Reliance Industries (RIL), impacted the telecom stocks as they wiped out market capitalization to the tune of Rs 16,997 crore. Airtel, Idea, Reliance Communications stocks tumbled on Thursday trading.

However, Reliance Industries was not lucky enough as during the session as the stock fell by three per cent to Rs 1,029.15. RIL eroded the market capitalization by Rs 10,295 crore.

Bharti Airtel Ltd, Idea Cellular Ltd and Reliance Communications Ltd lost a combined Rs.15,840.92 crore in market value after Reliance Industries Ltd chairman Mukesh Ambani announced aggressive tariffs for its Jio mobile phone services.

However, Reliance Industries was not lucky enough as during the session as the stock fell by three per cent to Rs 1,029.15. RIL eroded the market capitalization by Rs 10,295 crore. Investors deserted the counters of telecom operators, with Idea Cellular plunging 11 per cent to Rs 83.20, its 52-week low, during the day on BSE. Later, the stock closed at Rs 83.70, down 10.48 per cent.

Bharti Airtel lost Rs 11,932 crore in market valuation while Idea saw an erosion of Rs 3,709 crore and RCom Rs 1,356 crore. Mirroring the volatility among the telecom stocks.

Shares of Bharti Airtel tanked 8.99 per cent to Rs 302 intra-day and ended the day 6.37 per cent lower at Rs 310.70. Reliance Communications too slumped 10.11 per cent to Rs 48.45 during the session and later ended with a loss of 8.81 per cent at Rs 49.15. Shares of Tata Teleservices (Maharashtra) Ltd dived 2.83 per cent to Rs 6.19.

After the intra-day plunge, Bharti Airtel lost Rs 11,932 crore in market valuation while Idea saw an erosion of Rs 3,709 crore and RCom Rs 1,356 crore. Mirroring the volatility among the telecom stocks, the BSE telecom index too plunged 5.67 per cent to end at 1,156.58. Reliance Jio has invested $20 billion to roll out 4G infrastructure and will offer free voice calls and cheaper 4G data from September 5 onwards. From 5 September, Jio’s bouquet of services will be available for free till 31 December.

Reliance’s big bang launch of JIO is certainly a boon for the masses of the country, but has left a big question mark on the possibilities for shareholder wealth creation in the long term. The investment made into RelianceJio to the tune of Rs 150,000 crore needs to generate at least 11.5 percent per annum. This is the implicit historical return on its investments that it had delivered in the past. Now, therefore to accumulate net surplus of Rs 17,250 crs per annum is considered to be an uphill task in the near future for Reliance Industries.

The investment made into RelianceJio to the tune of Rs 150,000 crore needs to generate at least 11.5 percent per annum. This is the implicit historical return on its investments that it had delivered in the past. Now, therefore to accumulate net surplus of Rs 17,250 crs per annum is considered to be an uphill task in the near future for Reliance Industries.

Coming to the macro-economic state of India, the gross domestic product (GDP) grew below expectations at a five-quarter low of 7.1 percent in the first three months of 2016-17, down from 7.9 percent in the fourth quarter of the previous financial year.

After a dismal economic growth in the first quarter, India’s manufacturing activity expanded at a 13-month high in August, backed by surge in new orders and output, according to a private survey.

Bharti Airtel lost Rs.11,938.83 crore in market value on Thursday, Idea Cellular lost Rs.3,030.08 crore and Reliance Communications lost Rs.872 crore, while Mukesh Ambani was making the announcement at RIL’s 42nd annual general meeting (AGM).

Falling in line, other telecom operators will be forced to revise their business model, revenue model and the network in use. This will result in rise in capex spending.