Synopsis: India's recent spectrum auction netted Rs11,340.78 crore, the third lowest since 2010. Despite this, limited investment and recent tariff hikes by telecom companies are expected to boost profitability, bringing positive sentiments for investors.
India's recent spectrum auction netted the government Rs11,340.78 crore, marking it as the third lowest since competitive bidding began in 2010. Despite the lackluster outcome, the limited additional investment by telecom companies and their recent tariff hikes are expected to boost profitability, creating a positive outlook for the telecom sector.
The auction, although uneventful, is a significant event for the telecom industry. Only 1.3% of the total spectrum on offer was sold, reflecting a cautious approach by telecom companies. This cautious strategy is mainly due to the substantial investments already made in the 5G spectrum, which have yet to yield significant returns.
Telecom giants like Reliance Jio and Bharti Airtel have recently announced tariff hikes, which are anticipated to enhance their revenue streams. These tariff increases come at a crucial time, as the companies aim to balance their books after the heavy expenditures on the 5G rollout.
Reliance Jio's recent tariff hike has linked its business directly to the performance of Reliance Industries Limited (RIL), causing a surge in RIL's share price. Bharti Airtel has also seen a positive market reaction, with its shares hitting new highs following the tariff hike announcement. Conversely, Vodafone Idea has experienced selling pressure, reflecting investor concerns about its ability to capitalize on the current market conditions.
The limited bidding during the auction can be seen as a strategic move by telecom companies to focus on maximizing returns from their existing investments in the 5G spectrum. With high growth expectations for India's economy and the manufacturing sector, the government plans to add 80 GW of thermal capacity by 2032 to address potential peak power shortages. Currently, 30 GW is under construction, with 44–45 GW worth of projects expected to be awarded by FY27.
Overall, while the spectrum auction did not create significant excitement, the telecom sector's cautious investment approach and recent tariff hikes are set to improve profitability. Investors in telecom stocks can look forward to a period of steady growth as companies navigate the complexities of spectrum management and revenue optimization.
