What are Telecom Stocks?
Telecom stocks refer to the shares of companies that offer telecommunication facilities, including mobile connections or internet services. Telecom sector stocks indicate a huge growth potential, given the increasing need for communication tools and equipment in households and commercial spaces for the services to work.
In short, these firms help set up systems that allow data to be transmitted anywhere in the world, whether in text, voice, video or audio. When the country is turning cashless, robust telecom service providers are a must. This significantly increasing requirement for such companies makes their stocks the most preferred today.
In the Union Budget 2025-26, the government announced allocating ₹95,298 crore to the telecommunication and information technology sectors. This shows how serious the country is about boosting these sectors, thereby offering significant opportunities for investment. As of May 2024, India's telecom industry has been ranked second globally, with the total number of users being 1.2 billion.
Why You Should Invest in Telecom Stocks?
You should invest in telecom stocks as the companies operating in this sector offer services, which have become a basic necessity today. Some of the major reasons that drive investors towards these stocks are increasing users, technological advancement, user-friendly policies, and a competitive market.
Increasing users: The number of subscribers for these telecom sector service providers is on the rise. With the country becoming digital, every household and commercial space has to have efficient mobile devices with internet connectivity available all the time.
In the last couple of years, the major focus has been on the rural areas where communication was mostly interrupted and disturbed. In May 2024, the telecommunication sector in India’s rural areas was recorded to have reached 59.59% subscribers.
Technological advancements: To make telecom services accessible to even the remotest areas of the country, the companies deploy various technologies based on the latest trends. With the advent of 5G and cloud services and the Internet of Things (IoT), these companies have found a new source of revenue generation by framing a different kind of business model altogether.
User-friendly policies: The government keeps introducing policies that support telecom investment. One of the schemes is allowing 100% Foreign Direct Investment (FDI) in the field, which encourages uninterrupted growth of the sector.
To be specific, the FDI inflow was recorded to be $39.32 billion from April 2000 to March 2024. In addition, reduced license fees, spectrum liberalisation, and Production Linked Incentives (PLI) for equipment facilitating networking are other initiatives that the government offers to the telecom sector.
Competitive Market: The Telecom sector is highly competitive, with multiple service providers offering similar sets of services. The pricing strategies, in competition with each other, go aggressive as all the players are in a rush to become consumers’ first choice. As a result, sometimes, the prices move downward, giving consumers an opportunity to enjoy telecommunications services at highly affordable rates.
Apart from the above-mentioned reasons, there are multiple other reasons that make investors willing to invest in these stocks. Some of these include the sector’s growth potential, its global position, regulatory policies, etc.
What is the Future of Telecom Stocks?
The future of telecom stocks is bright and promising as technological advancements are a common phenomenon in this sector. From 2G to 3G, 4G, and now 5G, the connectivity has only seen a positive movement.
While earlier, users could only talk to their loved ones at a distance using the Internet, they could sit in one place and get all global updates with just one click later on, and today, even devices talk to each other using IoT technology.
The telecom sector has come a long way, and with the roadmap ready for 6G, multiple other innovations have yet to be introduced. The 5G network subscription in India is expected to reach 350 million by 2026, which will be 27% of the mobile subscriptions. The growth depicted from the time telecommunication services emerged to date indicates the bright future that the sector has ahead.
What Factors Affect Telecom Stock Prices?
The factors that affect telecom stock prices are regulatory compliance, industry trends, capital expenditures, and financial health.
Regulatory compliance: Companies must comply with the regulations specifically framed for the telecom sector.
Any fault in this respect leads to paying penalties, which hampers the company’s reputation, thereby affecting its stock prices. The telecom companies, among other regulatory requirements, must ensure the protection of customer data and facilitate fair competition.
Industry trends: The telecom industry is subject to undergoing changes due to the continuous advancement in technology. Especially after the invention of AI, the costs incurred in deploying this technology and risks associated with data conditioning have become a major concern as, if not controlled, they might affect the stock prices of the companies negatively.
Capital expenditures: The capital expenditure in this sector goes towards network enhancement. Companies that spend a significant amount on continuous upgrades are more trustworthy, and hence, the stock valuations are positive most of the time.
Financial health: As investors, you must look at companies' financial statements and check their debt levels and revenues generated to see if making an investment would be worth it.
The entry of Reliance Jio in the telecom sector, and that too with feasible rates, affected the financial health of the popular and already established telecom service providers. Such instances must be taken into consideration while assessing stock prices.
Other factors that can impact telecom stock prices include market share, technological innovation, market competition, financial performance, and its dependence on Average Revenue Oer User (ARPU).
What are the Advantages of Investing in Telecom Stocks?
The advantages of investing in telecom stocks are stable demand, continuous expansion, defensive nature, and government support.
Stable demand: The demand for telecommunication tools, equipment, and services is consistent. As communication in a household as well as a business space holds prominence irrespective of the distance between the two parties, the need for telecom services keeps increasing. This is what never leads to a reduction in the demand for it, encouraging investors to invest in it.
Continuous expansion: The telecom industry emerged as a service provider that allows voice calls through landline phones. Then, it became a network provider for wireless phones and mobile phones.
These mobile phone networks began with 2G support and gradually moved towards supporting 3G, 4G, and now 5G connections. The rates and requirements of these services, in short, have only seen a forward movement, making investing in these stocks advantageous for investors.
Defensive nature: The stocks of this sector are considered a good defense as their consistent demand never lets the stock prices get affected negatively. Even during the economic downturn, the market seems stable enough not to disappoint investors. The telecom sector stocks are less volatile compared to stocks from other sectors.
Government support: The Indian government keeps making efforts to support the telecom industry, which is the need of the hour. The Union Budget 2025-26 significantly focused on this sector, announcing better infrastructural setup for the telecom services and projects, and making the services more affordable.
Besides the above-mentioned benefits, investors can also consider these sector stocks for the innovation and technology standards that the sector maintains, the steady revenue streams it offers, and the high growth potential it possesses.
What are the Risks of Investing in Telecom Stocks?
The risks of investing in telecom stocks include high debt levels, regulatory challenges, and market saturation.
High debt levels: As the telecom sector aims to improve and provide a more advanced and efficient network to consumers, their infrastructural setup requirements increase.
To build that, the companies seek capital-intensive alternatives, causing higher debt levels. Investors can compare the revenue generated with the debt levels to decide whether to invest in it or skip it.
Regulatory challenges: The government offers significant support to the telecom sector, which makes it intervene in the system and frame regulations for the industry.
Being strictly regulated, the telecom sector has to remain updated on various policies, fees, and charges that are introduced from time to time. If companies are not aware of the updates, they might witness market uncertainty, incurring additional compliance costs.
Market saturation: Competition in the telecom sector is high as multiple service providers offer similar services and try to deploy all technological developments in their systems every time. The price wars, in such cases, are aggressive, which sometimes makes telecom brands incur losses by reducing product prices unfavorably for customers.
In addition to the above, the sector might face some other challenges too, including technological disruption, market volatility, etc.
When Telecom Stock Prices Go Up?
The telecom stock prices go up when the regulatory costs become lenient. The government’s initiatives to support the sector, a piece of positive news about the same, and compliance costs or a waiver on the rates at which the services are made available can boost the stock prices as the services become more affordable for consumers.
As soon as the union government announced allocating more than ₹1 lakh crore to BSNL and MTNL, the stock prices of the latter skyrocketed to almost 28% in two consecutive trading sessions. This is because the financial aid would help the telecom sector player to clear its debts and monetize their assets.
When Telecom Stock Prices Go Down?
The telecom stock prices go down when the companies fail to recover their market share. In September 2024, Vodafone Idea share prices fell to 14%, as it could not achieve the free cashflow breakeven and was unable to retain the market share.
Brokerage firm Goldman Sachs stated that the company will continue losing its market share by up to 300 basis points in the next four to five years.
