Telecom- the fall of tariff and stock prices

Reliance's "50 paisa for all calls" announcement and TRAI's per second tariff suggestion have brought down all the telecom stocks . The leader Bharti is down almost 23% in 3 days and idea is trading below it's issue price. So, is it an end of all situation for the telecom world?.

Telecom has the widest reach of customers and no one can beat them in reach ( bottom of pyramid). There is a lot of rural penetration left . 3G, Net usage over phone are in their intial years. Banking opportunities are also foreseen for the telecom operators in rural areas ( may be in urban India too).

Tariff war, reduction in ARPU and more competition waiting to jump in are definitely negative factors. But some how I see a great future for telecom.

With reduction in tariff over the years, my bill has never come down and Internet usage over telephone network is going up. So, I see a huge opportunity in these big falls of telecom stocks.

In the long run these companies ought to bounce back strongly. Let's keep our fingers crossed till then . Such chaos mostly provide great opportunities.

should I buy bhart, rcom, idea, MTNL, BSNL at this level? is it a good buy. what returns will telecom give

Active vs Index (Passive) Investing

Index Investing is a passive way of investing . Having a bunch of stocks in portfolio exactly mirroring a stock in an index is a passive way of investing. This can be done by purchasing stocks mirroring an index and tracking the weight and readjusting the portfolio whenever the constituents or weightage in the index changes. Better is to buy an Index fund. This ensures that you get returns close to index.

Example if you bought an index fund of sensex when sensex was at 10,000 , it would have appreciated 70% when sensex is around 17,000. ( Returns would be exactly similar to the index minus tracking error , of a fund or an investor).

If someone believes that actively choosing stocks from the wide range of stocks available, invests in them then it is active investing.

In India most equity funds are actively managed funds. The index funds generally involves a lesser cost. Actively managed funds have managed to beat indices (on an avg.) many a times, excepting 2005-07 period.

Investing in either of the type of funds should be made by an investor after understanding the nature of products clearly.It's also not a bad idea to diversify your investments between active and passive funds.