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Is the Telecom Sector the new Leader of the next Decade?
The past quarter has been a painful time for the investors. Major stocks and indices have fallen almost 50% from their all time high and at the time of writing this blog they are still at least 30% down. In such a market it is difficult to find the confidence and the right stocks where we can put our hard earned money without the fear of witnessing another blow by the bears. Well with the quest of finding some good opportunities for our investors, I was going through all the charts of individual stocks and what caught my eye was Bharti Airtel stock making all time high and too in the market where bulls are taking a beating from the bears almost every alternate day. This reminds me of what Mr. Ramesh Damani, one of the successful investors in India said “There is always a bull running somewhere and we need to find that.”
Why the Telecom Sector?
If simply put then this sector is the future of the modern world. Internet related services have recently seen a boom in the market. Private sector to government sector all are shifting to internet based services. Whether it is banking service, bill payments or entertainment, everything is done via the internet. In this unfortunate time of corona, when the whole world is under lockdown the most used service is the internet and the communication service. Future trends that are coming are Work from Home, online gaming, online entertainment and any other thing that you can possibly think of. So it is very clear that this is one of the sectors that is going to shine. Without delaying anymore let me show you why I think that the leaders of this recession could be the Telecom sector.
1. Bharti Airtel
Let’s first talk about the stock that is leading them all. Before we look at charts let’s talk about what we are seeing in the market. In the past few months Airtel increased their tariffs and the market very well absorbed the hike. This might be because of lack of options to the customer or might be fuelled by the lockdown as during lockdown the data consumption has increased tremendously. And as a result the stock prices have risen continuously as can be seen in the below charts.
1.1 Candlestick Chart
In the first chart, you will see a clear sign of breakout from its previous highs and also a breakout from a bullish Cup & Handle formation.
1.2 Relative Strength Analysis
Now I thought to compare its performance with the Nifty 500 and it is clearly outperforming it. See how it has broken previous support turn resistance levels (marked with red horizontal line)and is now trading above those levels.
1.3 Now what?
Looking at the first two charts you must be having FOMO i.e. Fearing Of Missing Out. But don’t worry as the overall market is still a little weak which might make Bharti Airtel give a pullback to its breakout level . Another evidence to support this is RSI. It is giving a bearish divergence on a weekly time frame which suggests a pullback upto the fibonacci level of 61.8% i.e. ₹550-490.
2. Vodafone Idea
With this stock I might be touching the painful nerves of many investors but it is important to talk about Vodafone Idea. If we see in the market after Airtel & Jio, there is only one other player and that is Vodafone Idea. Though it is facing troubles in capturing the market I think it will get the benefit of lack of options to the customers. With this lets look at some charts.
2.1 Candlestick Chart
In the first chart, there is a descending triangle formation on the weekly chart and is being supported by the RSI bullish Divergence. Even the volume is showing heavy accumulation at the lower levels. The break of the triangle to upside does not guarantee the start of long term uptrend as there are two resistance levels around ₹12 & ₹18 which might stop its upside journey but if it breaks and sustains above those levels then possibly it can be multibagger.
2.2 Line Chart
If we take another look at the same chart but now without the noise by using a line chart then there is something interesting. There is also a triangle formation on chart same as the previous chart but here it has broken that triangle formation already which is giving early signals of upside breakout on the candlestick chart.
2.3 Relative Strength Analysis
In this chart I have compared the stock with Nifty 500 to analyse its performance. As we can see that there is a rectangle formation on the chart and the ratio has started to give the breakout (highlighted in circle). And with the breakout if it breaks the trendline also then in coming months or years the stock can outperform the Nifty 500.
3. Bharti Infratel
Infratel is the infrastructure provider to the telecom companies. Its parent company is Bharti Airtel. Its major clients are Airtel, Jio, Idea, Vodafone, BSNL and Tata teleservice. Now it’s natural that if its clients’ client base is going to increase with time so as the need for the towers and related infrastructure and this will directly benefit Bharti Infratel.
3.1 Candlestick Chart
This monthly chart says it all. Currently the price is resisting near the support turned resistance level and is forming a strong bullish candle at the level (candle is not yet complete). Price took support and recovered sharply from the previous pivot point. RSI is giving a bullish divergence without going in the oversold zone. There is a good upside potential once it gives breakout from the marked levels.
3.2 Relative Strength Analysis
I have included comparison of Bharti Infratel with the monthly Nifty 50 & the Nifty 500. Both charts are showing somewhat similarity.Comparison chart with Nifty 50 shows that it needs to break the horizontal line and the trendline marked to start its outperformance whereas Nifty 500 comparison chart is giving the breakout from the trendline but yet to give a breakout through resistance turned support level. It is giving some early signs of breakout.
4. Sterlite Technologies
Sterlite Technologies is another service provider to the telecom and the internet service provider companies. They are industry leading integrators of data networks.I am not going to explain the charts of Sterlite as by now you must have understood the process. Its charts are also very similar to the above charts so you should not have any issue in understanding.
4.2 Relative Strength Analysis
Now don’t think that I am saying to put all your money in telecom stocks but what I am trying to convey through this blog is that an investor who is aiming for the long term should keep telecom stocks in their radar as the above analysis proves the potential this sector holds. Investors should always look to diversify their portfolio and the telecom sector can be that one sector. So always keep your eyes open for the right opportunity at the right time to catch the winning trend.
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