Everyone's punting on Vodafone Idea. Is it worth the risk?

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Subscribe to enjoy similar stories. Everyone must have heard that one should never average down a falling stock. If there is a turnaround in sight, betting on a revival may be worth considering.

But if nothing happens, buying at lower levels is like investing in a dead business. The reason is that you generate returns if a stock goes up, not down. Yet many do the opposite and buy stocks during prolonged downturns.

Take, for example, Yes Bank, Suzlon Energy, and Syntex Plastics, where many investors tried catching the bottom. All they did was catch a falling knife. They kept averaging when the stock was in a long-term downtrend, correcting over 90% until the share price settled in low single digits.

The same story has played out with Vodafone Idea (Vi). The number of shareholders has increased from 2.2 million in December 2021 to 5.4 million as of September 2024, a jump of ~145%. (Note: That’s the growth in the number of shareholders, not the share price.) So, now that everyone has been punting on its revival, the question to ask is whether it is worth the risk? I have tried connecting the dots in this story.

Trouble started in 2007 when Hutch was renamed Vodafone. At that time, there were more than ten telecom operators in India, including Airtel, BSNL, Aircel, and Tata Indicom. Smartphones and 3G started taking root, leading to massive subscriber growth.

However, due to intense competition, telecom companies engaged in an enormous price war, which pulled down the sector's average revenue per user (Arpu). Later, as Reliance Jio entered the industry in 2016, it triggered a fierce price war with free voice calls and inexpensive data. This caused the recharge value to take a significant beating, leading to further cuts in