Expect earnings to bottom out in telecom sector: Prakash Diwan

In a chat with ET Now, Prakash Diwan, Chief Portfolio Strategist from Prakash Diwan's Wealth, shares his views about the telecom sector.

ET Now: What would explain the spurt that we saw in Bharti Airtel and as such the entire telecom space irrespective of the management jugglery at Bharti Airtel?

Prakash Diwan: Absolutely, it is quite puzzling. A change in the management was seen as better for Bharti, but I do not know why other players also rallied so much. In my view, the number of dual sim connections that the industry was used to has come down dramatically in anticipation of some sort of a tariff hike.

The change in deal mindset has resulted into a likely increase in ARPUs. So, if ARPUs and the traffic were to go up, then these companies could start getting into a scale which is much more efficient and profitable, which means that the numbers would start improving here on. So, it is like a bottoming of the earnings parts in this industry and things could start looking up from an operational efficiency perspective.

ET Now: After Wockhardt and United Spirits, many market men are of the view that Reliance Communications could be another special situation stock. Do you buy that argument?

Prakash Diwan: Possibly, it does have the potent of special situation stock and in this year you would have to look at these kind of opportunities. Look at its valuation and the broken balance sheets are the best special situation potent. Hence, this stock definitely qualifies for the special situation. Even from an operational efficiency perspective, Reliance Communications has definitely improved and we believe that the numbers would start reflecting that as well.