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Understanding the Different Types of Sectors in the Stock Market

What are ‘sectors’ in a stock market?

The marketplace is huge. For instance, 1900+ companies are listed on India’s National Stock Exchange (NSE). The 1900+ companies on NSE are of 11 sectors.

The firms span a wide range of industries. Sectors are a way of classifying companies in the stock market based on the industry in which they operate.

Read ahead to learn more about the different sectors in stock markets with a special focus on the Indian equity space.

Sorting the stocks

So much information, but so little time. Investors face a challenging task before allocating money to a specific stock.

In a library, when you know which books are placed on which shelves, it makes things easier for you to walk over and choose a title that most serves your area of interest. Likewise, when stocks are grouped into sectors, they become more accessible to investors. As a result, the classification saves plenty of time.

On the same note, sectors help inform investors about industries they would not want to park their money in. For example, during times of pandemic when air travel tends to be restricted, investors may want to refrain from tourism or aviation sectors.

What are the different sectors in the stock market?

The key sectors in the Indian stock market are, but are not limited to:

  • Agriculture & Commodities
  • Aviation
  • Automobiles
  • Banks & Financial Services
  • Electricals & Electronics
  • FMCG
  • Gas & Petroleum
  • Information Technology
  • Infrastructure
  • Pharmaceuticals
  • Real Estate
  • Telecommunications
  • Textiles
  • Tourism

What are some of the major sectors in Indian stock markets?

Some companies are household names, while some are less well-known. Sectors come in handy by bringing hidden gems to the attention of investors. Amongst the various sectors in stock markets, here are four key sectors that you need to know about:

  1. Automobile Sector

This sector consists of more than just carmakers. It also houses manufacturers of Commercial vehicles, 2-wheelers, 3-wheelers, and tractors. Being an agricultural economy, makers of tractors and commercial vehicles find a serious set of followers in the Indian investing community.

Examples:

  • Maruti Suzuki
  • Ashok Leyland
  • Bajaj Auto
  • Escorts

The Indian market lacks a pure-play Electric Vehicle maker like Tesla. However, any change is never far away.

  1. Banks & Financial Services Sector

What makes the Banking sector prominent is that it makes money from money. The top line of banks is derived from the cash flows of every other company on the broader market.

This is because almost every other company seeks debt from a bank to manage its capital structure. This is the reason behind the distinction of profits from financial companies from the profits of non-financial companies. Consequently, a sectoral approach to investing enables one to account for this differentiation.

This massive sector includes Non-Banking Financial Companies (NBFCs), Asset Management Companies (AMCs), Ratings and Research Institutions & Insurance players, and public and private banks. NBFCs bank with the unbanked.

AMCs take care of Mutual Funds. Rating agencies work on credit ratings while diversifying their income from research materials. Insurance players pool small funds from a wide audience to cover the loss of a select few.

Examples:

  • ICICI Bank
  • Bajaj Finserv
  • Nippon Life AMC
  • CRISIL

This sector is one to closely track as it is set to welcome one of the largest players in the insurance arena and fintech space in the coming days.

  1. FMCG Sector

FMCG companies are engaged in manufacturing products that we buy and use regularly. Such goods are utilised quickly. FMCG products guarantee a steady stream of income, which leads to steady profits and thus a strong return on investment.

Examples:

  • Hindustan Unilever
  • Britannia Industries
  • Colgate Palmolive
  • Procter & Gamble

The FMCG sector is resilient to recession. So even during bad days for the wider economy, your neighbourhood grocery stores would be busy selling products of FMCG companies.

  1. Pharmaceuticals Sector

Biologicals; Active Pharmaceutical Ingredients; Excipients; Vaccines; Cures for Regular and Rare Diseases – are just a few of the many products from the pharma industry. Thanks to the COVID-19 pandemic, the industry is gaining familiarity amongst investors. The industry is strictly regulated because the products are concerned with the well-being of global citizens.

Examples:

  • Biocon
  • Sun Pharmaceuticals
  • Pfizer
  • AstraZeneca

Pharmaceutical companies enjoy a special privilege: Unparalleled pricing powers. Needless to say, regulations are in place to counter irresponsible behaviour.

Sectors Sliced and Diced

In summary, sectors group several stocks based on similar business models, allowing investors to zoom in on a particular industry and identify a particular stock. The overload of information at the hands of investors eats up a lot of useful time. A sectoral approach to investing ensures investors spend valuable time on the right group before narrowing it down to the right stock.

Besides enriching one’s knowledge, sectors help unearth hidden gems in the domain that might have been unknown.

The sectoral portfolios built by WealthDesk are based on a risk-weighted approach that ensures no company receives undue attention in allocating funds. Eventually, this method spreads the risk for investors. The WealthBaskets are managed by SEBI registered professionals.

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