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Monday, May 30, 2016

Reliance Communications Ltd: Buy
CMP: Rs.49.50
T: Rs.57
SL: Rs.47
Triggers:
1. Reliance Communications is introducing 4G LTE with network partner Reliance Jio in most of its service areas. The company derives a large proportion of its revenue from wireless internet services. It also offers the cheapest voice rates in the country, and has an estimated 5 mln customers on its CDMA network.

2. Reliance Communications, the telecom firm from Anil Ambani Group, has extended the sale of its 4G SIM cards to all circles except the three southern states and Rajasthan. The states which are not getting a 4G upgrade immediately — including Karnataka, Tamil Nadu and Kerala — are among the most lucrative data markets in India. It is not clear why subscribers in these four states are not being upgraded, but part of the reason could be the presence of MTS — which is being acquired by RCom — in these areas. MTS is present in eight circles including the above four, as well as Delhi, Kolkata, West Bengal and UP West. Since MTS is already present here, RCom has shifted its CDMA subscribers to the network of MTS, thus freeing up its spectrum. This spectrum will be joined with Reliance Jio’s 4G spectrum to create a combined network.

3. In states where RCom does not have a back-up partner in the form of MTS, the Anil Ambani company has to first shift its subscribers outside the network before switching off its CDMA service and diverting its spectrum to Jio’s 4G network. The three southern states especially are lucrative data markets, and by launching 4G services before, or at the same time as, RCom, Jio will enjoy the first-mover advantage in these areas. Of course, incumbents like Idea Cellular and Bharti Airtel have also launched their 4G services in these states, but their networks cover only a fraction of the area that the combined RCom and Jio network currently covers. While Jio has a total of around 1.5 lakh 4G base stations in India, Bharti Airtel and Idea Cellular have only around 15,000-17,000 each. This gives an added edge to Reliance Communications Ltd, due to obvious reasons. 

4. The last correction seen in the domestic market continued only for few days, as FIIs pumped in fresh funds. Moreover, domestic institutional investors (DIIs) has been lending their much-needed support to the market and has been cushioning a free fall. 
In such a situation, and especially when the Nifty (cash) is above 8116-8150 levels, the short term TREND remains UP,both in the daily and weekly charts. 

Also, the history suggests investors have always made money when there is fear. The current market conditions are something like that.....

In another very important development, the big Indian corporate houses are finding ways to deal with debt and the banks are encouraging them to go ahead. As reported recently in DNA India the economic research department of the State Bank of India has found that some of the big corporations are setting aside part of their assets to deal with debt.


For example, Anil Ambani’s ADAG has set aside assets worth Rs.59,761 crore to manage a debt of Rs.1,24,956 crore. That is a little less than 50% of the total debt. Reducing debt will improve not only the balance sheet of the corporation, but also that of the banks with their stressed assets.

Conclusion: Buy the stock of Reliance Communications Ltd at Rs.49.50, for short term targets of Rs.57-59. 
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