Few pairs of stocks illustrate the unpredictable nature of the Indian equity market quite as vividly as a leading wind energy company and a major telecom operator, both of which have become household names among retail traders over the past few years. Tracking the Suzlon Share Price recently reveals a business working through a period of correction after a spectacular multi-year rally, while a look at the Idea Share Price tells an almost opposite story, with the telecom counter having climbed sharply over the past year even as the company continues to manage a heavy debt load. Together, these two names offer a useful lens into how very different business narratives can each attract intense retail interest on Indian exchanges.
A Tale of Two Turnaround Stories
Both companies have a similar characteristic despite being in completely different lines of business – they have been associated with the concept of a turnaround. The wind energy manufacturer has struggled for years with a debt restructuring process that had to take place after aggressive expansion in the past, eventually emerging with a cleaner balance sheet and ramping up orders as India’s push for renewables gathered pace. The telecom company, on the other hand, has battled a huge amount of statutory dues and spectrum-related debts, staying afloat thanks to promoter support, government support, and improvement in subscriber revenues.
This common aspect of a turnaround is what attracts retail investors to both counters, with tales of organisations clawing their way out of the jaws of oblivion being much more appealing than slow-burning stories of established companies doing their thing, and both these stocks having seen their time in the sun at various points in the past few years.
Recent Price Trends Tell Different Stories
What sets both these names apart is the performance of their prices in the recent past. Wind energy manufacturer’s shares have pulled back considerably from their previous levels, trading at a discount to their annual lows after a period of disappointment with margins, as well as a general booking of profits after a period of outperformance. The telecom counter, meanwhile, has marched higher consistently over the past year, with subscriber growth, improving average revenue per user, and funding requirements for expansion plans all playing a part in the story.
This is an important point to make, because it underscores the danger in focussing too much on similarities between stocks. Two companies can trade at a similar level, be in a similar state in terms of their turnaround narrative, and can even trade at a similar popularity level among retail investors, but it doesn’t mean they are destined to behave the same way on a consistent basis.
Why Trading Volumes Remain High for Both
A unique characteristic of both these counters is their ability to consistently feature among the most-traded stocks on Indian exchanges in terms of volume. This is a characteristic of large-cap issues with a significant free float, where both long-term funds as well as short-term traders can participate with ease, and is a primary reason why both counters continue to see heavy participation. Stocks with such a profile can see large swings at times due to changes in perception, with traders quick to jump on either side of the boat.
The Role of Sector-Specific Tailwinds and Headwinds
Both companies also have sector-specific factors that influence their stories. The renewable energy manufacturer enjoys the tailwinds of a government keen on adding to its clean energy generation capacity, as well as a healthy pipeline of orders from public and private sector consumers. At the same time, risks related to execution, input prices, and competition in the wind turbine manufacturing space have to be considered as well. The telecom company’s prospects, meanwhile, are dependent on a consistent pricing regime across the industry, funding for expansion plans, and the ability to close the gap with larger and better-capitalised peers.
What This Divergence Teaches Investors
What both these counters teach investors is that a stock’s appeal to retail traders, or a supposed similarity between two issues, can say little about their potential in the near-term, as both will continue to be driven by developments specific to the companies, as well as the sectors they operate in. Investors looking at either of these counters, or similar stories in other sectors, should consider focussing on the fundamentals of the issues, instead of getting carried away by the perceived similarity between them.
A Balanced Closing Perspective
Both companies operate in vital sectors for the Indian economy, whether it is electricity generation or telecommunications, and both have been through a similar ordeal as a company in needing to restructure its debt. What sets them apart is the current state of play in their respective sectors, which determines their future prospects, and consequently the price performance of their counters. Investors should keep an eye on developments in these sectors, as well as the quarterly reports of the companies, before making any attempt to size up the potential of either issue, considering each on its own merits rather than a single theme in which they appear to be similar.