The Indian telecom sector has witnessed serious instability after many companies went bankrupt or closed shops once Jio entered and the competition dynamics changed. But today, things have changed, and as an investor from the outside, there would be many wondering, is this the right time to put my money in the telecom sector? Well, here’s the thing. Everyone has a set of values and principles around investing or trading in the stock market. Talking specifically about the Indian telecom sector for investing, these are the stocks you can purchase if you are looking to invest in telecom service providers - a) Reliance Industries Limited (RIL), the parent of company of Reliance Jio; b) Bharti Airtel, and c) Vodafone Idea (Vi). But then there are several infrastructure and tech companies as well which are directly involved in the telecom sector. This list would include names such as Tejas Networks, Sterlite Technologies Limited (STL), Tata Communications Ltd, and more. Before investing in the sector, here are a few of the key things that you should know.
Telecom Sector ARPU Set to Rise
With a new round of tariff hikes expected later this year on the prepaid plans, telcos will see their ARPU (average revenue per user) going up. This means that their gross revenues would also keep going up. It doesn’t necessarily mean that all the telcos will be profitable, but at least Airtel and Jio are expected to be. The better the ARPU will be for the industry as a whole, the more money would be flowing in, and it would mean that the telcos can make more investments and expand networks and services.
Govt Working on Another Relief Package
The Indian government is working on another relief package for the industry. The telcos have been under immense pressure over the last few years. Their cash flow position has been pretty rough because of all the statutory dues and the ruckus that Jio’s entry created. But Airtel seems to have recovered; however, Vodafone Idea is still struggling. A few of the things that the government has already done for the sector are remove levies on the new spectrum, refund bank guarantees, allow 100% FDI (Foreign Direct Investment), except from the border-sharing countries and more. Even on the infrastructure side of things, the government has allowed infra sharing, built an online RoW (Right of Way) portal for faster clearances of applications and bring a uniform charge in place. With 5G arriving soon and the demand for wireless connectivity services going up both in the retail as well as enterprise space, there’s likely going to be a boom in the revenues for the operators.
Debt Levels to Go Up Too
There’s one thing that no one can ignore. While the telcos are going to roll out new networks and then products and services related to it, their debt level is also going to go up. Post the 5G spectrum auction, the debt level of the sector has gone up significantly. It won’t hurt Airtel or Jio a lot because both of these companies can deleverage pretty fast, but it would be pretty bad for Vodafone Idea. The government is pushing for the Digital India vision. For that, the centre is helping out the telecom sector as much as it can. In fact, Vodafone Idea has agreed to give the government a major stake in the company against letting a serious amount of accrued interest dues go away. There’s also a Production Linked Incentive (PLI) scheme for the telecom sector laid out by the government. The scheme aims to make India a hub for manufacturing and is also pushing local players to produce more. Look, there can be several arguments for why one should invest or not invest in the Indian telecom sector. But there’s one thing that no one can deny, and it is that without the telecom sector working day and night, we wouldn’t have the connectivity in the first place to read this online. The Telecom sector is the backbone of the digital economy, and its relevance is only going to grow in the coming time. So, yes, if you place your bets carefully and with proper calculation and assumption of the future, you might actually make money. But in the stock markets, nothing’s promised. You could also lose your money, so make your investments carefully!
