Exploring the Telecom Sector as an Investment Avenue in 2021

14 May, 2021

9 min read

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Investment Opportunities in Telecom Industry in 2021 - Smart Money
Investing and trading on the Indian stock markets has the potential to bring in large returns.

Introduction -

Investors and traders need to make informed, educated decisions in order to reduce the likelihood of their money being wasted in the event that the share isn’t as anticipated. Over time, it is ordinary for the demand and focus to move from stocks in one particular sector to another. 2O21 has been anticipated to be a big year for the telecommunications sector and shares invested in the same are likely to rise in value.

What is the Telecommunications Sector?

If we examine the telecommunications industry, it is made up of companies that help aid communication on a global scale. This form of communication is made possible with a number of varied platforms ranging from the phone to the Internet. They make use of airwaves, cables, wires, or operate on a wireless basis. Companies that fall under this sector are responsible for creating infrastructure that permits information in the form of audio, data, text, voice and/or video to be transmitted across the world.

Investing in the Telecommunications Sector -

The fact that the telecommunications sector allows for communication across the globe highlights its importance. The Coronavirus pandemic has further compounded this sector’s importance. There has been an increase in the usage of services provided by this sector as they allow for virtual communication to continue keeping in mind the social distancing norms that have prevailed.

From an investment point of view, stocks made available by telecommunications companies have been known to exemplify traits desired by both, income as well as growth stocks. Share price appreciation for instance is most likely when investors consider buying stocks of small companies which offer wireless services. This is an ideal opportunity for growth investors to take advantage of. On the other end of the spectrum, income-oriented investors can seek stocks in large companies which deal with equipment and services.

Value investors too have the chance to score big within the telecommunications sector. This is owed to the fact that the need for the services provided by this sector are paramount and will continue to persist regardless of what changes a business cycle will bring with it. Companies operating within this sector are known to enjoy protected competition made possible by government mandates. However, technological advances or mergers and acquisitions can result in uncertainty leading to loss – and potential recovery. Value investors can step in during a slump provided they believe in the fundamentals of the company and think the changes they incorporate will be sufficient to bring about an upturn.

Investors of each of the aforementioned forms, however, must recognize the investment risks possible under this sector. While investments in these stocks are liable to bring higher than ordinary gains during rises in the financial market, they can incur extreme losses during a recession.

Telecommunication Industry in India in 2021 –

The telecommunications industry is vital to any given country – and is of particular value in India. If we consider data, India is home to the second-largest number of telephone connections in the world. India has 1171.72 million (figures as of October 30, 2020) telephone connections of which 1151.73 are mobile connections. That being said, the Indian telecommunications sector has been troubled by issues pertaining to adjusted gross revenues (or AGR). Legacy tax issues have also caused challenges which are primarily related to retrospective amendments that were instilled in 2012.

The present government has recognized these issues and the 2021-2022 budget has therefore allocated ₹14,200 crores such that it can overcome issues it has been bogged down with in the past. These funds are meant to be used to complete an optical fiber cable-based network for the Defense services, improving mobile services in the North East and providing broadband in 2.2 lakh panchayats situated across the country.

Each of these proposed plans will greatly help strengthen and expand the areas of operation within which telecom networks provide service. Remote and unconnected areas are no longer set to stay the way they presently are. By reducing the strain on the telecommunications sector and allocating it with such vast funds, this sector can majorly help revive India’s economy.

Thus far, Indian telecommunications networks have excelled at molding themselves to align with the changes in how people live, work, study and engage with one another keeping in mind the Coronavirus pandemic. Owing to their ability to provide enhanced and newer modes of communication, telecommunications companies are likely to provide the stability needed by other companies (situated across industries) in order for them to recover and thrive.

The need for the hour for the telecommunications sector is to create a business model to be used to focus on enterprise markets that are likely to prosper from the use of advanced wireless technologies. These might require bringing in third-party partners who can better meet the varied requirements of certain industries.

The government of India has launched a public WIFI campaign called PM Wani in a bid to increase internet access across the country. Under this scheme, unlicensed entities such as small-scale tea stalls and food stalls will be able to provide their customers with public WIFI services. This will be possible after they obtain bandwidth from ISPs. Apart from increasing broadband connectivity across the country, this project will reduce the capacity crunch faced by telecommunications companies.

What to Look for When Investing in the Telecommunications Sector –

Prior to investing in a stock in this sector, it’s important investors consider the company’s cash flow and make sure it has a viable balance sheet in place. Understanding the scale of the company is also relevant as a high subscription to a given company allows for vast improvements in the company’s gross margin and free cash flow. Investors must consider the competitive advantages and growth potential of the company they want to invest in. Trends that drive this industry are important as well and can be indicative of the demand for the same. Stocks that perform best within this industry are ordinarily market leaders. Therefore, investors can consider investing in companies that are  already in the lead. That being said, they must make sure these companies have viable fiscal patterns. Presently in India, Reliance Jio and Bharti Airtel dominate the telecommunications market.

In order to stay up to date on the trends prevailing within the stock market including the telecommunications sector, create an account with Angel Broking. This account will allow you to have a single access point to all markets and provide you with in-depth quality research.

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