(Bloomberg) -- As investors watch the corporate tussle for control of India's largest-listed television network unfold, hopes for sector consolidation and economic reopenings are turning the nation's lagging media stocks into winners.
The 10-stock Nifty Media Index has jumped 46% since the end of August, driven by an 81% surge in heavyweight Zee Entertainment Enterprises Ltd. -- which got a non-binding offer from Sony Group Corp.'s Indian unit last month and has said it is open to other proposals. Zee's rally has put the media gauge on track to beat the benchmark NSE Nifty 50 Index in annual gains for the first time since 2017.
If a deal for the predominantly Hindi-language broadcaster goes ahead, India's media sector, hit hard by the pandemic and competition from streaming giants like Netflix Inc. and Amazon.com Inc., could be primed for more gains.
“Consolidation is inevitable. At some point media companies will have to think of merging with each other, since most of them are making losses,” said Kranthi Bathini, a strategist at Mumbai-based WealthMills Securities Pvt., adding that thin margins in the media space add to the incentives for firms to merge with cash-flush buyers.
A potential Zee deal, however, isn't the only catalyst. The media gauge's recent gains have also been fueled by cinema operators PVR Ltd. and Inox Leisure Ltd. -- up about 23% and 35% over one month -- as easing Covid-19 restrictions allow for reopening of theaters.
Further, broadcasters like Zee, Network 18 Media & Investments Ltd. and Sun TV Network Ltd. are seen benefiting as the start of India's three-month long festive season boosts expectations for corporate spending on sales and advertising. Shares of Network 18 Media have soared almost 37% over the past five sessions.
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