|Tuesday, 04 January 2011 00:00|
One of the many reasons why telecom stocks performed badly in the past, there can be little doubt, is that under the then minister A Raja, the telecom ministry was seen as being anti-incumbent, whether in the form of giving out scarce spectrum to newcomers or threatening to dramatically hike spectrum charges from the older companies. Similarly, there can be little doubt that HCC’s shares have taken a beating as it has become clear that the government is going to give its Lavasa project a hard time over its environment clearance. If Unitech’s price rose when A Raja gave it a telecom licence, the post-CAG fallout and the possibility the licence could get cancelled, has seen prices fall. There’s nothing new in the fact that share prices of companies that are seen to be in favour with the powers that be rise, and of those that are seen as out of power fall. Which is also why so many industrial houses are routinely found to be spending so much money keeping all political parties happy. After all, you never know who will come to power tomorrow.
The problem, however, arises when the impact of government policy becomes so important that any company which is seen to be affected by government policy starts performing badly. This is precisely what an FE study pointed out on Monday. Companies that are seen to be vulnerable to government policy—for land, for environment clearances, for natural resources, spectrum, you name it—have seen their stocks being hammered by investors. In major sectors, FE found, share prices fell by almost 48% during 2010. Sure, there were other reasons, and to blame the fall of telecom stocks solely on government policy is surely unfair—the fact is that while firms are looking for new revenue streams like money transfers and even from 3G data services, consumer revenues have been stagnating for several quarters now. But a general trend of the markets derating stocks seen as vulnerable to government policy can only be bad news for the economy and is certain to hit investment. One of India’s biggest investment areas over the next five years is going to be infrastructure, a sector that needs environment clearances, land and other natural resources—if the markets downgrade infrastructure stocks, this will affect their ability to raise funds. Similarly, urban development is another major investment area and needs both land and environment clearances—ditto for the stock market impact on this sector. As his government enters a new year, and as news reports suggest, Dr Manmohan Singh takes a view on go-no-go and other environment policies, this is something he’d do well to ponder over.