Top 5 Options Trading Strategies

Top 5 Options Trading Strategies

Options strategies combine different stock market positions with a view to managing risk or enhancing returns. Why are options unique? Unlike futures, options are asymmetric. For example, when one person buys futures and another sells futures, the risk of price fluctuation is equal for both. However, in an option the buyer has limited risk and unlimited return potential while the seller has unlimited risk potential and limited returns. This makes options strategies possible. Here are five popular options strategies.

Protective Put strategy

If you bought Reliance Industries at Rs.1485, how do you protect from a price fall. Create a protective put strategy by purchasing a put option of lower strike. So you can buy a 1480 strike put option at Rs.8. A put option is a right to sell and the premium is a sunk cost. If the price goes above Rs.1493 (1485 + 8), you profits are unlimited. On the downside, your maximum loss is cannot exceed Rs.13 {(1485-1480) + 8}. In short, you limit your loss by paying a small premium of Rs.8.

Covered Call strategy

A covered call strategy is normally used when you want to reduce the cost of holding a stock. If you bought SBI at Rs.340 for long term, but the stock falls to Rs.328; what do you do?. You are confident of the long term prospects of SBI, but in the next 3 months you don’t expect the stock to cross Rs.350. You can start by selling the near month 350 call at Rs.20 and repeat for 3 months. Here is how the returns table will look like.


First Month

Second Month

Third Month

SBI 350 call sold at




Position closed at




Net Profit / Loss




You have booked a net profit of Rs.26 on SBI calls in 3 months. At the end of 3 months, your effective cost of holding SBI has come down to Rs.314 (340 – 26). The only risk is if the stock falls sharply, you don’t have protection on the downside. That is where a butterfly comes in.

Butterfly strategy

Butterfly combines a protective put and covered call. Here, the premium received on the higher call sold, reduces the net cost of the put option purchased. This increases chances of profits. Butterfly is a multi-leg transaction, so watch out for transaction costs.

Bull call spread strategy

This option strategy is generally used when you are moderately bullish on a stock. You buy a call option of a lower strike and sell the call option of the same stock of a higher strike. For example, Tata Motors is currently quoting at Rs.153 and you expect the stock to touch Rs.170 at best in March 2020. You can create bull call spread by buying 150 March call option at Rs.12 and selling 170 call option at Rs.5. Your net cost of Rs.7 (12-5) will be the maximum loss on this strategy. Maximum profit on this strategy will be made at Rs.170. Beyond that, whatever you make on the 150 call, you lose on the 170 call. Hence, this strategy should only be used when you are moderately bullish.

Long strangle strategy

Normally, Infosys is very volatile on the day of the results but it has generally been hard to estimate the direction. Here, you can use volatile strategy like a Long Strangle. It entails buying a higher strike call and a lower strike put on the same stock. For example if you are expecting major volatility in Infy next month, you can create a Strangle by buying 820 March call at Rs.12 and also an 800 March put at Rs.16. Total cost of the Strangle and also maximum loss will  be Rs.28 (16+12). You will be profitable above 848 (820+28) or below 772 (800-28). This is a high cost strategy so you must only use it when you are confident of a large move either ways.

Go ahead and make the best of these options strategies. You can manage your risk and your returns better.

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Best Index Funds to Invest in 2020

Best Index Funds to Invest in 2020

Did you know that between 1979 and 2019, the Sensex moved from 100 to 42,000? In other words, your investment has compounded annually at 16.3% for 40 years. This is just the capital appreciation part. If you add the average dividend yield of 1.5%, the Sensex has compounded at 17.8% annually for the last 40 years. But, how do you invest in the Sensex?

That is where an index fund comes in handy

An index fund is a mutual fund that mirrors the portfolio of the index. Unlike an active fund, there is no stock selection. When you buy an index fund, just look at which index the fund is benchmarked to? The portfolio of the fund will mirror the stocks in the index in approximately the same proportion. You can buy and sell index funds from your existing mutual funds online platform. Index funds offer you a smart and efficient method of participating in the stock market without taking on too much of stock specific risk.

Best performing index funds for 2020

As a mutual fund investor, you have a wide choice of index funds. Every large fund house has an index fund of its own and there are funds pegged to different indices. How do you make a choice? The first rule is to stick to diversified indices like the Sensex or the Nifty. Secondly, since we do not know about future returns, we can use past returns on index funds to select the best fund to invest in. Here is the list of best index funds ranked on historical returns over last 5 years. We have only considered the growth option of Regular Plans of these index funds.

Fund Name

1-Year Returns

3-Year Returns

5-Year Returns

HDFC Index Sensex Fund (G)




ICICI Pru Nifty Next 50 Fund (G)




Tata Index Fund Sensex (G)




UTI Nifty Index Fund (G)




HDFC Index Nifty 50 (G)




Data Source: Morningstar | Returns calculated as on 20th Feb 2020

How to select the best index fund from the list?

There is a risk in taking a futuristic view based on past data but here are five basic rules you can follow to zero in on the best index fund.

  • Look for consistency of returns. If you are wondering why we are looking at 1-year returns for index funds (these are long term products), the idea is to check for consistency. The returns across various time frames should be consistent with the group. That makes the index fund more predictable.
  • Index funds do not have to spend on fund managers to find multi-baggers. Indexing is a passive approach and hence the lower cost gets passed on to you in the form of lower total expense ratio (TER). That helps to enhance returns. You can even opt for Direct Plans to reduce costs further.
  • One unique parameter you must consider in index funds is the tracking error. It measures the extent to which the index fund deviates from the index. Normally, an index fund should have low tracking error.
  • Given a choice, prefer the index fund with the larger AUM as small AUMs can come in the way of effectively replicating the index.
  • Take a long term view when you invest in an index fund. Markets tend to be cyclical and hence you must keep an investment horizon of at least 8-10 years for an index fund.

Index funds save you cost and the risk of stock selection. A bit of homework on your part can leave you with a satisfying and profitable journey investing in index funds.

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Yes Bank Sets Off Contagion Selling in the Stock Markets

Yes Bank Sets Off Contagion Selling in the Stock Markets

The news flows that came from Yes Bank on the morning of 05th March were drastically different from the news flows in late evening. In the morning, the Yes Bank stock rallied by over 25% after it was reported that SBI was expected to come in and support the bank with capital infusion. However, things took a turn when the RBI imposed a moratorium on Yes Bank at 8 pm on 05th March. Under the moratorium order, the Yes Bank board was superseded by an RBI appointed administrator and there were limits of Rs.50,000 withdrawal placed till April 03rd.

Why this move is impacting the stock markets?

Yes Bank is still a part of the Nifty 50 and also a player in the futures segment. The pressure is visible from the fact that as of 10.40 am there are more than 24 crore shares on offer but volumes have been just 1.30 crore shares as there are no buyers even at lower levels. Here is the impact.

  • UBS, a leading brokerage, has pegged the fair value of Yes Bank at around Rs.1, which effectively means it is worth nothing. That explains why there are no buyers in the counter despite the stock being nearly 45% down on 06th March.
  • Most people are worried about the impact that Yes Bank could cause to the markets considering the size of its balance sheet. As of March 2019, Yes Bank had total deposits of Rs.228,000 crore and now all that comes under moratorium. Yes Bank has borrowings of Rs.108,000 crore and that also creates a systemic risk.
  • The next problem could be at a brokerage level. Brokers and other investors who have borrowed against Yes Bank shares could face immediate margin calls. In addition, brokers have already been instructed to close out all outstanding positions in Yes Bank to avoid any market panic.
  • Then there is the collateral damage at two levels. Depositors may be forced to sell out other assets and shares to make up for the deposit locking of Yes Bank. This maybe evident in the next few days. Secondly, borrowers with loan sanctions fromYes Bank may have to look for alternative sources of finance.
  • The moratorium on Yes Bank raises some questions over other private banks that have been facing NPA problems in the past. For example IndusInd Bank, RBL Bank and Bandhan Bank have taken deep cuts in trading on 06th March. Other banks in the midst of a liquidity crunch like Lakshmi Vilas Bank are also on lower circuit.
  • Yes Bank was quite active in funding real estate projects and even NBFCs. Both these sectors will immediately feel the crunch as the funding sources dry up and that could also have a cascading effect. That is also evident in the stock prices.
  • Lastly, don’t forget the retail borrowing effect. As per the RBI announcement, any deposit made by an individual will only be paid after adjusting against the loans outstanding. This could create a major liquidity crunch among retail investors. In fact, the weak consumption that has been a major bugbear for the Indian economy could get worse if the situation is not handled quickly and effectively.

Yes Bank has already lost over 90% of its market value in the last one year and the sharp fall on 06th March only exacerbates the problem. The impact of Yes Bank on the Indian economy is likely to be much deeper than originally anticipated. A lot will depend on how quickly the administrator is able to put the house in order, infuse capital and bring stability back to the markets. The crisis is in the open; it is now about how it is handled!

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5 Well Known Stocks that Outperformed Benchmarks in FY20

Growth Stocks
by Nikita Bhoota 08/06/2020

From the general election to the slowing economy to coronavirus pandemic, FY20 witnessed it all. Share markets have been is under pressure since the coronavirus (COVID-19) pandemic broke in the country and all over the world. Domestic stock market benchmarks Sensex and Nifty slumped 24% and 26% respectively from 1st April 2019- 31st March 2020, posting their worst performance in over a decade. In 2008-09, the Sensex had declined 37.9%, while the Nifty50 cracked 36.2% on account of global financial crisis. Apart from these, factors such as massive corporate tax rate cuts, tussle between the RBI and the government, Union Budget, repo rate cuts, Ayodhya verdict, abrogation of Article 370, US-China trade deal were among the major triggers in FY20. However, even during this fall in markets, there are certain shares that not only outperformed the benchmark, but also gave investors stellar returns during the year. 5paisa have picked five such stocks that have outperformed the Nifty50 in the past financial year and have been strong despite tough economic conditions.

Company Name




Abbott India Ltd.




Gujarat Gas Ltd.




Berger Paints India Ltd.




Nestlé India Ltd.




Avenue Supermarts Ltd. (DMart)




Source: Ace Equity

Abbott India

Abbott India has given stellar returns, gained 113% in FY20.  This stock is not deterred by the current pandemic. The Pharma MNC stood strong despite the crash in markets. The company’s 9 out of top 10 brands are leaders in their respective participating markets and their rigorous restructuring measures have aided to achieve this market-beating performance. Over the years, the company has also operated with a net debt-free structure having more than sufficient cushion of cash.

Gujarat Gas

Gujarat Gas share price gained 58.1% in FY20. Gujarat Gas (GGL) is an amalgamation of Gujarat Gas Company and GSPC Gas. Gujarat Gas is India's largest city gas distribution player, with a total sales volume of 6.2mmscmd and presence across 24 districts in the states of Gujarat and Maharashtra and the Union Territory of Dadra Nagar Haveli. It has a network of a 15,000 km-long gas pipeline and 291 CNG stations, constituting 25% of all CNG stations in the country.

Berger Paints

The stock gave magnificent return of 50.9% in FY20. It has not only managed to outperform Nifty 50 but also the country’s largest paint company Asian Paints. Berger has presence in the decorative paints and industrial coatings segments in domestic and international markets. Further, it has a presence in external insulation finishing systems. In the industrial coatings segment, Berger caters for the protective coatings, automotive (primarily two-wheeler and three-wheeler, and commercial vehicles) and general industrial segments. In the international segment, Berger has a presence in the decorative paints segment in Nepal and has presence in the external insulation system in Poland (where it is the second largest player, with 11-12% market share through Bolix SA, which it acquired in 2008 for US$39m. It has the second-largest distribution network, with more than 23,000 dealers.

Nestlé India Ltd

Nestlé India, the Maggi maker, has also gained over 49.6% in FY20. The company primarily operates in four segments, viz. Milk Foods & Nutrition, Chocolates & Confectionery, Prepared Dishes & Beverages.

Nestlé India has strong brands like Cerelac, Lactogen Nestlé Dahi and Slim milk (Milk food and nutrition), Maggi (Prepared dishes), KitKat (Chocolates) and Nescafé (Beverages) under its fold. Company has seen strong growth in its Maggi and chocolate brands during the CY19.

Avenue Supermart (DMart)

Avenue Supermarts (DMart) shares were up 47.3% in FY 20. DMart is an emerging supermarket chain, with major presence is in the states of Maharashtra, Gujarat, Telangana and Karnataka. DMart operates most of its stores in densely located areas and focuses on customers in the lower and middle class segments of society. DMart provides lower prices for its products across various categories and sub-categories, which is appealing to the price-sensitive customers. In order to minimise operational costs, the company follows an ownership model (including long-term lease contracts, where lease period is over 30 years), rather than a rental model.

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5 Stocks to BUY in 2020

5 Stocks to BUY in 2020

The Indian stock market continued to rally and gave a positive return for the straight fourth year in the CY2019. For year 2019, Nifty and Sensex climbed 11.5% and 13.8% respectively. The indices touched the historic closing high of 12271.80 (Nifty) and 41681.54 (Sensex) despite the slowdown in the economy. Slashing of corporate tax, the six years high FII flows of Rs1 lakh crore in 2019, significant progress on bankruptcy resolutions, and Govt.’s efforts to address liquidity issues of Real Estate and Infrastructure sector guided the market performance in 2019. On the international front, easing trade war tensions also acted as positive for the Indian markets.

Going forward, market performance will be driven by benefits of low corporate tax, macro- economic tailwinds, implementation of Government policies, interest rate scenario and good monsoon. Hence, based on historical performance, management outlook and earnings growth, we have picked the below mentioned stocks that are likely to offer decent returns in 2020.

Hero Motocorp (Hero)

CMP: Rs2,349
Target Price: Rs3100 (1-year)
Upside: 32%

Hero is the largest 2W company in India. The company currently has ~52% share in the Indian domestic motorcycle market and ~37% share in the domestic 2W market (including scooters). We expect revenue CAGR of over FY19-21E as retail demand has started improving across rural and urban markets from second half of September 19. We expect recovery in rural demand to continue following a good monsoon and expectations of a strong Rabi crop output. Additionally, the recent launches of Xtreme and XPulse are gaining good market share and are expected to do well hereon too. We expect margins to remain under pressure over FY19-21E due to higher promotional expenses related with BS IV inventory. With volume growth in FY21E expected, margins may see an up move on better operating leverage. We expect PAT CAGR of over FY19-21E. The stock trades at 13.3x FY21E EPS


Net Sales (Rs Cr)

OPM (%)

Net Profit (Rs Cr)

EPS (Rs)

PE (x)



















Source: 5paisa research


CMP: Rs525
Target Price: Rs 570 (1-year)
Upside: 8%

ICICI Bank is India’s second-largest private bank with a loan book size of Rs5.9tn in FY19. It enjoyed a ~6.0% market share in system loans as of FY18. ICICI Bank is looking to tap the growth opportunity, through market-share gains across products, fast credit delivery to retail and SME customers by using data analytics and rule-based engines for pre-approved loan offerings, relentless focus on cross-sell to affluent/own customers, partnership with Fintechs to add innovative products, adoption of an eco-system based approach with targeted product offerings, and making relationship managers responsible for cross-selling liabilities and fees. Strong growth opportunity, potential reduction in credit costs and improving profitability would keep stock performance robust, in our view. The stock trades at 2.5x P/BV FY21E.


Net Sales (Rs Cr)

Net Profit (Rs Cr)

EPS (Rs)

PBV (x)
















Source: 5Paisa Research

Larsen & Toubro (L&T)

CMP: Rs1,291 
Target Price: Rs1,778 (1-year)

L&T is India’s largest engineering and construction company and is well placed to leverage the uptick in the investment cycle. We believe that the government’s push on infrastructure and widening base of mid-size orders will aid faster execution. L&T's strong order book of Rs303,222cr (2.8x TTM sales) at Q2FY20-end provides healthy revenue visibility for the next 2 years. Further, monetisation of non-core assets will help release capital and improve return ratios. We estimate the company to report revenue CAGR of 19% over FY19-21E with a flat EBITDA margin. PAT CAGR is estimated at 17% over the same period. ROE has been continuously improving from 9.9% in FY16 to 15.8% in H1FY20. Management is confident of achieving ROE target of 18% by FY21E. The stock trades at 14.2x FY21E EPS


Net Sales (Rs cr)

OPM (%)

PAT (Rs cr)

EPS (Rs)

PE (x)



















Source: 5Paisa Research

SBI Life Insurance (SBI Life)

CMP: Rs984
Target Price: Rs1180 (1-year)
Upside: 20%

SBI Life is India’s largest private life insurer, with an overall market share of 12.2% on a retail APE basis. The company has a product mix of participating, non-participating and linked policies, with the mix skewed towards linked products. Unlike peers, for which growth is largely driven by one or two product segments, SBI Life has delivered industry leading growth across protection, non-par annuity and guaranteed return products as well as ULIPs, defying the weak sentiment in the capital markets. We believe that it could continue to surprise the street positively via resilient growth in uncertain times driven by a strong distribution franchise and mass customer base. We expect 17.3%/25% EV/VNB CAGR over FY19-21E. The stock trades at 3.2x FY21E P/EV.


New Premuim Income


VNB margin (%)





















Source: 5Paisa Research

Quess Corp

CMP: Rs512
Target Price: Rs740 (1-year)
Upside: 44%

Quess Corp is one of India’s leading integrated providers of business services. Quess’ service and product offerings are currently grouped under five operating segments i.e. People and Services, Technology, Facility Management, Industrials and Internet. We expect revenue CAGR of 21.1% over FY19-21E on account of strong outlook in staffing business, consistent client additions and entrance into new service platforms. The company enjoys huge advantage of scale in general staffing in India (largest in India with 240,000 associates & ~41% of group sales). Further, the blend of recently acquired Allsec and Conneqt will make Quess a challenging play in BPM platforms. We expect margins to improve by 110bps over the same period on account of presence in specialized staffing and focus on ramping up high growth sector viz. Facility Management. Expansion of Allsec in newer geographies will also support the margin growth.  We project PAT CAGR of 23.7% over FY19-21E. The stock is currently trading at 19.1x FY21EPS.


Revenue (Rs cr)

OPM (%)

Net Profit (Rs cr)

EPS (Rs)

PE (x)



















Source: 5Paisa Research

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Which mid cap and small cap stocks to invest in for expected Multi-Cap rebalancing?

best multi cap mutual funds
by Nikita Bhoota 17/09/2020

Market regulator SEBI on Friday i.e September 11, 2020 has revised asset allocation norms for multi-cap equity mutual fund schemes. According to the revised rules, multi-cap mutual funds will have to invest at least 75% of their total asset under management (AUM) in equity & equity related instruments versus the earlier threshold of 65% of the total AUM. The market regulator also mandated multi-cap funds to invest at least 25% in each small-cap, mid-cap and large-cap stocks. So, if a multi-cap scheme of a fund house has an AUM of Rs 10,000 crore, it will have to invest at least Rs 2,500 crore each in the three categories of stocks. According to earlier rule, multi-cap funds had freedom to invest across sectors and market capitalizations. SEBI has directed to abide by the revised rules by January 2021.

Data sourced from media reports shows at present the multi-cap fund (AUM of ~Rs1.5tn) holdings are tilted towards large cap stocks (~73% of AUM as of Aug-2020), So it is widely projected that the mutual funds would have to rebalance the portfolios by increasing allocation to midcap stocks (~17% of AUM as of Aug-2020) and small cap stocks (~6% of AUM as on Aug-2020). However, the clarification issued by SEBI (SEBI Clarification Circular) on Sunday evening also points out that portfolio rebalancing is one of the options available to mutual funds and the MF could consider options like merging with existing schemes. The clarification also suggests that SEBI is open to inputs from MF industry on the revised rules for multi-cap funds. 
We have shortlisted some of the 5 mid cap and small cap stocks that can benefit if the portfolio rebalancing was to happen. 

5 Mid Cap Stock Recommendations

Company Sector ~Market Cap
(Rs Cr)
Godrej Agrovet Ltd. Agriculture 10,190 31 30.1
Coromandel International Ltd. Agriculture 23,727 14 18.7
Ashok Leyland Auto 22,853 49 NA
Kajaria Ceramics Ltd. Building Material 8,270 8 45.2
Ipca Laboratories Ltd. Healthcare 27,214 27 25.1

Source:5paisa Research, BSE

Godrej Agrovet Ltd:
Godrej Agrovet (GAVL) is a diversified, research & development-focused agri-business company. It is one of the leading companies in the animal feed business and the market leader in the oil palm plantation industry in India. Additionally, it has a sizeable presence in agri-inputs (i.e. agrochemicals), dairy products, and processed poultry.

Coromandel International Ltd.
Coromandel is the flagship company of the Murugappa Group and operates in fertilisers and other agri-input segments. It is India's second-largest producer of phosphatic fertilisers and is particularly strong in the South-Indian states of Andhra Pradesh and Telangana. Coromandel has an installed capacity of nearly 3.5m tonne of fertilisers (22% of domestic production capacity) and also operates in the agrochemical, specialty nutrient and organic compost verticals.

Ashok Leyland:
Ashok Leyland (AL), part of the Hinduja Group, is one of India's leading manufacturers of commercial vehicles such as trucks, buses, tippers, trailers and Defence vehicles. It is the second-largest player in the medium & heavy trucks segment in India, with market share of ~33%. AL is one of the leading players in heavy buses with market share of ~43%. The company also manufactures and sells engines for industrial and marine applications, spare parts and special alloy castings.

Kajaria Ceramics Ltd.
Kajaria Ceramics is the largest manufacturer of ceramic and vitrified tiles in India. The company manufactures ceramic wall & floor tiles as well as glazed & polished vitrified tiles. It has also ventured into some allied segments (like bathware, plywood); albeit, these segments are still quite small at present, in terms of contribution to revenues and profits.

Ipca Laboratories Ltd.
Ipca Labs is a fully integrated pharmaceutical company producing branded and generic formulations, APIs and intermediates. The company has a strong position in the domestic market, mainly in cardiology, pain, anti-malarial/bacterial and anti-diabetics products. The company exports to 110 countries and is the ninth-largest pharma exporter from India, in terms of volume.

5 Small Cap Stock Recommendations

Company Sector ~Market Cap
(Rs Cr)
Kaveri Seeds Agriculture 3467 17 10.9
Quess Corp Industrials 6,470 14 33.6
Sudarshan Chemical Industries Chemicals 3,258 26 27.2
Heidelberg cement India Ltd. Cement 4,268 13 14.9
Persistent Systems Ltd. IT 8,949 23 21.4

Kaveri Seeds:
Kaveri Seeds is one of India's leading seed producers, with a broad product portfolio that includes hybrids for cotton, corn, paddy, bajra, sunflower, sorghum and various vegetables. In addition, in its Microteck division, Kaveri markets micronutrients and organic biopesticides.

Quess Corp:
Quess Corp (erstwhile IKYA Human Capital Solutions) is one of India’s leading integrated providers of business services. Quess is focussed on emerging as the preferred business function outsourcing partner for enterprise customers across a wide range of industries. Quess’ service & product offerings are currently grouped under three operating segments: Work Force Management, Operating Asset Management and Global Technology Solutions. 

Sudarshan Chemical Industries:
Sudarshan Chemical Industries (SCIL) has grown to become India’s largest and the world’s fourth-largest manufacturer of colour pigments. Its estimated market share in India stands at ~35%. The company’s product portfolio comprises organic, inorganic and effect pigments serving four main end-uses: coatings, plastics, inks and cosmetics.

Heidelberg cement India Ltd.
Heidelberg cement India Ltd (HCIL) is a subsidiary of Germany based Heidelberg Cement, the world’s third largest cement producer. HCIL’s clinker plants are located in Madhya Pradesh and Karnataka and its cement grinding units are located in Madhya Pradesh, Uttar Pradesh and Karnataka. Current cement grinding capacity of HCIL is 5.4mtpa (2.1mtpa in Damoh, 2.7mtpa in Jhansi and 0.6mtpa in Ammasandra).

Persistent Systems Ltd.
Persistent Systems is a technology services company. The company’s focus is on helping clients build and manage software-driven businesses. Its business strategy is aligned around four key areas: 1) Digital: Bringing together their technology partner ecosystem, solutions and a unique architecture to enable enterprises with digital transformation; 2) Alliance: Focus on the long-standing and multi-dimensional relationship between PSYS and IBM; 3) Services: Focus on services for software and product development including an agile and experience design; 4) Accelerite: Focus on products that include business-critical infrastructure software for enterprises, telecom operators and the public sector.