There are multiple sectors to invest in the Indian stock market. These sectors help us identify a group of stocks that see high growth potential.
Here, sector-wise categorization is widely used. Categorization as such makes sense as a particular industry may see exponential growth in a certain time period. For instance, the information technology sector in India saw a boom after economic reforms in 1991-92. If we take a more recent example, the fast-moving consumer goods (FMCG) sector was seeing growth in the pandemic despite the economy being dull.
Let us take a look at all the sectors in the Indian securities market and see their current performance to see which sector to invest in now.
The automobile sector in India primarily covers the companies that manufacture cars, two-wheelers, and heavy-duty vehicles. Being an agricultural-dependent economy, the industry also has healthy representation from tractor manufacturers. The auto ancillary industry is also considered a part of the overall sector.
There are two indices that cover the sector – Nifty Auto and BSE Auto.
The above graph shows the recent performance of the index. In the last six months, the Nifty Auto index has risen more than 12% (As of august 4, 2022).
In the longer term, the index that represents the industry has risen by 23% in the last five years, as of August 4, 2022. In the last five years, the index has seen a historic dip during the onset of the pandemic (March 2022).
Top companies in the auto sector to invest in (According to market cap)
- Amara Raja Batteries
- Ashok Leyland
- Bajaj Auto
- Balkrishna Industries
- Bharat Forge
- Eicher Motors
- Exide Industries
- Hero MotoCorp
- Mahindra & Mahindra
- Maruti Suzuki
- TVS Motor Company
- Tata Motors
- Tube Invest India
Banking and Financial Sector
The banking and financial sector is another important sector in India. The performance of the sector often reflects the overall trend of the stock market. Let us see how the index has performed in the recent past.
Banking sector short-term performance
In the last six months, the Nifty Bank Index, an index that tracks the performance of the top banking and financial companies, has been in a downtrend (as of August 04, 2022). The index has seen a drop of about 2% in this period.
Banking and finance are considered to be growing sectors. The downtrend here is an example of the fact that not every growing sector needs to perform consistently well. Now, let us take a look at how the sector is performing in the longer time frame.
Banking sector long-term performance
Here, the sector has grown by over 50% in the last five years (as of August 04, 2022). The banking sector, too, has seen a dip during the pandemic onset.
Top financial sector companies in the stock market
- AU Small Finance Bank
- AXIS Bank
- Bandhan Bank
- Federal Bank
- HDFC Bank
- ICICI Bank
- IDFC First Bank
- IndusInd Bank
- Kotak Mahindra Bank
- Punjab National Bank
- RBL Bank
The insurance sector is a similar sector here.
The energy sector is another important sector in India. The sector has eyes from different segments in India as the world is moving fast towards renewable energy. Let us look at the short term and long-term performance of the sector.
Energy sector short-term performance
Below is the six-month chart of Nifty Energy, an index that tracks the top companies in the sector. Here, the index has grown over 8% in the last six months (August 04, 2022).
Energy sector long-term performance
If we take a five-year time frame, you can see from the above graph that the growth of the sector has more than doubled, making it one of the most promising sectors to invest in. The sector has seen exponential growth after a dip in March 2020.
Top companies in the energy sector
- Adani Green Energy
- Adani Transmission Ltd
- Bharat Petroleum
- GAIL Ltd
- Indian Oil
- Oil & Natural Gas
- Power Grid
- Reliance Industries
- Tata Power Co.
IT Sector (Information Technology)
The information technology industry is one of those sectors that is always viewed with high potential in India. The sector has gone through many ups and downs and still manages to be one of the torch bearers in the growth of the stock markets in India, with a lot of mutual funds highly favouring the sector. Let us look at the short-term and long-term growth prospects of this promising sector.
IT sector short-term performance
The IT industry has been witnessing a continuous downtrend in the last six months, owing to the economic crisis. The Nifty IT index, which tracks the top companies in the sector, has dipped more than 14% in the last six months. (As of August 04, 2022).
IT sector long-term performance
On the contrary, if we look at the long-term perspective, the IT industry has seen substantial growth, with the Nifty IT index growing more than 176% (As of August 04, 2022).
Top companies in the IT sector
- L&T Infotech
- Info Edge
- L&T Technology Serv.
- Tech Mahindra
- HCL Tech.
Fast-moving consumer goods (FMCG) is one of the rare sectors that saw rapid growth even when the stock markets were seeing a downtrend due to the Covid-19 pandemic. This growth underlined the strength the industry posses.
One of the top reasons behind the growth is the fact that the companies in the industry sell goods that are non-replicable and unavoidable. These are often a necessity and not a luxury.
For instance, during a time of economic turmoil, you can do away with luxuries such as a new phone or a car, but goods the FMCG industry sell – like cereals and other food items, are needed more than ever when people sit at home, having nothing to do. Let us analyse how one of the growing industries has performed in the short and long-term time frames.
FMCG companies’ short-term performance
The above graph depicts the growth of NIFTY FMCG in the last six months. As is evident from the graph, the industry continues to show steady growth in the last six months.
FMCG companies’ long-term performance
If we take the long-term performance, too, you can see that the industry keeps growing despite smaller dips. One thing that is evident here is that FMCG companies don’t see sudden growth. Instead, their growth is slow but steady.
Here, the Nifty FMCG index has grown more than 67% in the past five years. (as of August 04, 2022)
Top companies that manufacture FMCG products
- Britannia Industries
- Colgate-Palmolive India
- Dabur India
- Godrej Consumer
- Hindustan Unilever
- Nestle India
- Procter & Gamble Hygiene
- Radico Khaitan
- Tata Consumer Products
- United Breweries
- United Spirits
- Varun Beverages
India’s pharma sector is one of the largest in India in terms of volume. It caters to the world’s second-largest population. The pharma companies in the country allow India to be the top supplier of medicines worldwide.
The pharma industry was in the spotlight in the recent pandemic period as it has to churn out a large number of vaccines to cater to the Indian population. Let us see how the industry has performed in the recent past first.
Short-term performance of the pharma sector
The pharma sector has been seeing a downtrend in the recent past, with the Nifty Pharma index dipping about 8% in the last six months (As of August 04, 2022). The industry has seen a massive surge in demand for drugs during the pandemic period. The current dip is largely attributed to the correction in the market after the demand of that magnitude.
Long-term performance of the pharma sector
The pharma sector has grown tremendously in the last five years, as indicated by the Nifty pharma index in the above graph. We have talked about the market correction in the above section. Underlining that, here we can see how the pharma industry saw a boom shortly after the onset of the pandemic. This uptrend is largely attributed to the surge in demand for medicines and medical equipment during that period. The successful production and distribution of Covid-19 vaccines also contributed to the uptrend. Experts believe that the sector is in a state of correction now.
Top pharma companies in India
- Dr. Reddys Lab
- Divis Lab
- Alkem Laboratories
- Gland Pharma
- Torrent Pharma
- Sun Pharma Inds.
- Aurobindo Pharma
- Zydus Lifesciences
The metal sector is another promising industry in India. It was one of the most performing sector till last year. But how does it hold up today? Let us take a look.
Metal sector – short-term performance
The above is the graph of Nifty Metal in the last six months (as of August 04, 2022). Here, you can see that the sector was seeing an uptrend in the first half of the graph. But then, the sector started falling. The uptrend in the first half is attributed to increased demand after war conditions in Russia have reduced the metal supply from there. But as the metal supply from those regions started to resume, the sector in India is seeing a downtrend.
Metal sector – long-term performance
If we take the long-term scenario, we can see that the industry has seen a general uptrend. Like many other sectors, there was a visible dip during the early months of the pandemic. But the sector managed to recover from it only to catch a downtrend momentum in the recent past.
Top Metal companies
- Coal India Ltd.
- Tata Steel Ltd
- Hindalco Industries Ltd.
- Vedanta Ltd.
- JSW Steel Ltd
- NMDC Ltd
- Hindustan Zinc Ltd
- Jindal Steel & Power Ltd
- National Aluminium Co. Ltd
- Steel Authority of India Ltd
How To Invest in These Sectors?
There are multiple ways in which you can invest in sectors. The primary way is to invest in top stocks of the sector. But randomly selecting stock from the list of companies given above may not work. Instead, apply analysis to each of the potential stocks and compare its performance with its peers to select a stock that can perform well in the future. You could also employ technical analysis to try and predict how the stock would perform in a short and long time frame.
If you want to invest in a sector’s index, the best option may be exchange-traded funds. They are funds that are tradable in the stock market and have a composition similar to that of the index it tracks. Here, too, constant monitoring is required. If you want an option that demands less from you, you could also consider a mutual fund. But the return potential could be offset by fees such as expense ratio.
Just like with stocks, the performance and the potential of these sectors might keep changing with changing economic conditions. Hence, always pay close attention to the economy before pinning down on one sector.