Macquarie Research has upgraded its outlook for the Indian telecom sector, citing an improved industry outlook, potential tariff hikes, and better cash flow visibility. The brokerage firm highlighted Bharti Airtel, Bharti Hexacom, and Reliance Industries as its top picks in the sector.

Key stock recommendations

  • Bharti Airtel: Macquarie reaffirmed an Outperform rating with a price target of Rs 1,710, driven by anticipated operating leverage and continued de-leveraging.
  • Bharti Hexacom: The stock also secured an Outperform rating, with a target price of Rs 1,450.
  • Reliance Industries: Assigned a Neutral rating, Macquarie set a target of Rs 1,300, pointing to moderate expectations in its telecom operations.

Upgrades for Indus Towers and Vodafone Idea

  • Indus Towers: Upgraded from Underperform to Neutral with a revised price target of Rs 310. Macquarie noted that the recent 30 per cent decline in the stock over the past three months presents an attractive valuation.
  • Vodafone Idea: The rating was lifted from Underperform to Neutral, with a target price of Rs 7, supported by hopes of industry-wide tariff revisions and sentiment recovery.

Sector drivers

  1. Tariff hikes: The expected increase in tariffs across the telecom industry is likely to boost earnings growth and enhance cash flow for major players.
  2. Jio demerger: Reliance Jio’s separation from its parent company is anticipated to improve investor sentiment and focus on telecom-specific operations.
  3. Operational efficiency: Bharti Airtel, in particular, is projected to benefit from its operating leverage and ongoing efforts to reduce debt.

Outlook

The Indian telecom sector appears poised for a rebound, underpinned by improving industry dynamics and attractive valuations. Macquarie's bullish stance reflects optimism around tariff hikes and structural changes that could drive long-term growth in the sector.