Understanding the Different Types of Sectors in the Stock Market
This Article Includes
- Getting Started with Sectors
- Sorting the Stocks
- Stock Market Sectors List
- A Dive into a Few Sectors in the Indian Stock Market
- Sectors Sliced and Diced
Getting Started with Sectors
The marketplace is huge. For instance, 1900+ companies are listed on the National Stock Exchange (NSE) in India. 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 the 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 to 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.
List of Sectors in Stock Market
The key sectors in the Indian stock market are, but are not limited to:
- Agriculture & Commodities
- Banks & Financial Services
- Electricals & Electronics
- Gas & Petroleum
- Information Technology
- Real Estate
A Dive into a Few Sectors in the Indian Stock Market
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 share markets, here are four key sectors that you need to know about:
- 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.
- Maruti Suzuki
- Ashok Leyland
- Bajaj Auto
What the Indian stock market lacks, though, is a pure-play Electric Vehicle maker like Tesla. However, any change is never far away.
- 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 in the wider 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) and Ratings and Research Institutions & Insurance players along with 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.
- ICICI Bank
- Bajaj Finserv
- Nippon Life AMC
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.
- FMCG Sector
FMCG companies are engaged in manufacturing products that we buy and use regularly. Such goods are utilized quickly. FMCG products guarantee a steady stream of income, which in turn leads to steady profits and thus a strong return on investment.
- Hindustan Unilever
- Britannia Industries
- Colgate Palmolive
- Procter & Gamble
The FMCG sector is resilient to recession. Even during bad days for the wider economy, your neighborhood grocery stores would be busy selling products of FMCG companies.
- Pharmaceuticals Sector
Biologicals; Active Pharmaceutical Ingredients; Excipients; Vaccines; Cures for Regular as well as Rare Diseases – these 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.
- Sun Pharmaceuticals
Pharmaceutical companies enjoy a special privilege: Unparalleled pricing powers. Needless to say, regulations are in place to counter irresponsible behavior.
Sectors Sliced and Diced
To sum up, 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 hitherto. 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.
There is no definitive number, and the stock market sector list in this article is certainly not exhaustive. The count will certainly grow. New companies evolve, and as a result, the count of sectors cannot afford to stay stagnant.
There is no specific answer to this. A sector that performed moderately earlier could spring up in the future or vice versa. Some sectors do well in the short run. Some sectors are bound to do well in the long run. Investment ought to be based on one’s risk appetite and holding period.
With WealthDesk, constant monitoring and rebalancing of the portfolio are undertaken to take care of the risk stemming from concentration. Moreover, one can invest in multiple sectors to diversify the risk as well.