India’s telecom sector enters multi-year growth cycle; upstream oil stocks back in favour: JM Financial – News Air Insight

India’s telecom industry is finally shifting from years of financial stress to a multi-year phase of profitability, rising ARPUs and large free-cash-flow generation, says Dayanand Mittal, Research Analyst at JM Financial. Speaking to ET Now, Mittal highlighted strong structural support for both telecom and upstream oil companies, while cautioning against high-valued oil marketing companies.

Telcos enter structural ARPU growth cycle

India’s telecom sector has undergone deep consolidation and successive tariff hikes, enabling operators to finally earn double-digit returns on capital. According to Mittal:

• ARPU is set to grow at 10–12% CAGR over the next 3–4 years
• Bharti Airtel and Reliance Jio will sustain 40%+ market share
• Capex moderation will drive strong free-cash-flow generation

Despite India’s low ARPU of USD 2–2.5—one-third of global emerging market levels—Mittal sees enough headroom for growth through:

• Gradual transition to pay-as-you-use plans
• 5G monetization, as use-cases evolve
• Less reliance on blunt tariff hikes and more on pricing segmentation

Even beyond three years, Mittal expects ARPU growth to stay in the high single digits (8–9%).

Upstream oil stocks favoured over OMCs

While oil marketing companies are enjoying strong marketing margins due to soft crude and firm diesel cracks, Mittal believes valuations have already priced in optimism.

JM Financial prefers upstream players like Oil India (top pick) and ONGC because:

• Valuations imply only $60 oil, offering limited downside
• Crude prices should stabilize around $70 per barrel in the medium term
• Oil India expects 15–20% cumulative production growth over the next 2–3 years
• Its subsidiary NRL will triple refining capacity in the next 12–18 months
• OMCs, meanwhile, face high capex cycles, lower future RoCE, and pressure on free cash flow.

Risks to the upstream call

Mittal acknowledges the view is contrarian, with crude currently soft. The key risks include:Crude staying below $60 only in case of a global recession, delays in E&P project execution as well as stocks remaining range-bound in the near term. However, he does not see significant downside from current levels.

Investor takeaway

Telcos: Strong multi-year ARPU trajectory + capex moderation = sustained cash-flow boom.
Upstream oil: Undervalued versus fundamentals; strong production visibility.
OMCs: Near-term tailwinds but long-term concerns over high capex and valuations.