Telecom at present defensive as a sector

Arjuna Mahendran, Head of Investment Strategy - Asia, HSBC Private Bank, spoke to ET Now on the further growth prospects of telecom.

ET Now: I am going to talk to you about the Indian telecom space since you do track that fairly closely. What is your sense from here on because the last fortnight, we have seen a good amount of price action when it comes to the entire telecom space do you think on an operating level as well we will see some sort of upgrade kicking in and therefore what is your call on Bharti, Idea and the likes?

Arjuna Mahendran: Well talking in general terms globally, telecoms are currently in favour because they are reasonably defensive as a sector. Cash flows are reasonable even though in India your telecom companies face challenges because of intense competition. With the 3G licenses being issued and the prospect of people taking on these new hand held gadgets which are much more lucrative for telcos because there is lot of web surfing etc. that goes on, on the new instruments the iphone etc.

That could potentially open up new revenue streams and enhance the existing ones. So I think that’s why telcos currently are in favour. We have seen tremendous new revenue stream growth across the globe as a consequence of the changes of usage. People who are using phones as not just instruments to talk but you are actually start surfing web and using email etc on it. And that trend of course has other consequences, it means that telcos have to upgrade their capital equipment to cope with the great news of band with etc. so that virtual cycle there is lot of investment going on. Revenue growth and therefore cash flows are fairly strong in telcos across the world and this is why investors like them. Dividend yields are also fairly good.