According to UBS, the Indian telecom industry appears to be entering a stagnation phase, with the firm issuing a cautious forecast ahead of the sector’s first quarter of financial year 2025-2026 (Q1FY26) results.
UBS stated that the telecom space currently lacks near-term growth catalysts and is “priced for perfection,” indicating that market expectations may be overly optimistic compared to actual demand and operational realities.
The firm further highlighted that although a 10-12 per cent tariff hike is anticipated later in FY26, there is a significant likelihood of delay. Mobile tariffs in India are now comparable to other emerging markets, and basic plans are already priced at the higher end when adjusted for per capita GDP. This could hinder further tariff hikes, particularly for lower-end users, thus capping revenue growth potential.
Further, the coming quarter is expected to be largely uneventful, with only slight revenue growth and muted operational momentum. Subscriber additions are projected to be limited, and any increase in average revenue per user is likely to be marginal. This indicates there is minimal room for financial outperformance unless major strategic shifts are introduced.
UBS also pointed out that valuations in the sector have become expensive, particularly when measured against those of regional peers. Although cash flows have improved, dividend payouts remain comparatively low against global standards, which reduces the appeal of the sector for investors focused on yield.
From a broader macroeconomic standpoint, telecom expenditure in India as a share of GDP is now on par with that of other emerging markets, implying little scope for further rapid growth through pricing alone.
Furthermore, with growing competitive pressures and unclear regulatory or policy support, the outlook remains difficult. UBS’s assessment indicates a defensive approach, suggesting the challenges facing the sector may not yet be fully accounted for in current valuations.
