Sectors and sectoral indices in NSE

 

Sectors are typically considered to be a broad classification. Within each sector, numerous sub-sectors and industries can also be further delineated. The Global Industry Classification Standard also known as GICS is the primary financial industry standard for defining sector classifications.

 

The Global Industry Classification Standard was developed by index providers MSCI and Standard and Poor’s. Its hierarchy begins with 11 sectors which can be further delineated to 24 industry groups, 68 industries, and 157 sub-industries. It follows a coding system which assigns a code from each grouping to every company publicly traded in the market. The GICS coding system is integrated throughout the industry allowing for detailed reporting and stock screening through financial technology.

 

The 11 broad GICS sectors commonly used for sector breakdown reporting include the following:

 

Energy

Materials

Industrials

Consumer Discretionary

Consumer Staples

Health Care

Financials

Information Technology

Telecommunication Services

Utilities

Real Estate

 

Following are the sectoral indices in NSE.  

Nifty Auto Index

Nifty Bank Index

Nifty Consumer Durables Index

Nifty Financial Services Index

Nifty Financial Services 25/50 Index

Nifty FMCG Index

Nifty IT Index

Nifty Media Index

Nifty Metal Index

Nifty Oil & Gas Index

Nifty Pharma Index

Nifty Private Bank Index

Nifty PSU Bank Index

Nifty Realty Index

 

All sectors are linked with economy but there are few sectors which are coupled to the economy while few which also perform well in bad economy. If the financial condition of the country is weakened, then Banking and Finance sector is affected e.g. The financial crises of 2008. In times of economic downtime, Auto sector is affected and does not perform as sales of auto is impacted during downturn of economy e.g. The COVID-19 situation of 2020. Consumer durable sector performs when economy is healthy and looking for growth prospects. In a healthy economy all sectors perform but when there is a recession or lag in economic growth, few sectors do not perform depending on the situation. The pharma sector is performing currently with the down turn of economy. PSU banks sector is in bad shape since a long time as the banking reforms in this sector has not pleased the investors. Oil and Gas sector performs when Global economy is in peak and demand of oil is high and prices are rising. Media sector depends on the performance of the media and is usually dependent on the growth of the media house. Metal is usually a gloomy sector and performs with difficulty. In times of bad economy, it is in bad shape and when economy is stable it generates results on investment but investment results are usually moderate. IT sector has turn out to be an evergreen sector with its performance in COVID-19 times. FMCG is usually a stable sector and depends on the demand in the economy which usually does not go below or above a certain point.

 

https://www1.nseindia.com/products/content/equities/indices/sectoral_indices.htm

https://www.zeebiz.com/market/sectors-nse

https://www.investopedia.com/terms/s/sector-breakdown.asp

How to pick a stock?

Here are the things an investor should consider when picking stocks:

1.       Earnings growth

2.       Stability

3.       Relative strength in industry

4.       Debt-equity ratio

5.       Price-earnings ratio

6.       Management

7.       Dividends

Here are the essential steps (or checklist) that you need to follow for picking winning stocks to invest in Indian stock market:

1.       Does the company have good fundamentals?

a.       Earnings Per Share (EPS) – Increasing for last 5 years

b.       Price to Earnings Ratio (P/E) – Low compared to companies in the same industry

c.       Price to Book Ratio (P/B) – Low compared companies in the same industry

d.       Debt to Equity Ratio – Should be less than 1 (Preferably debt<0.5 or Zero-Debt)

e.       Return on Equity (ROE) – Should be greater than 20%

f.        Price to Sales Ratio (P/S) – Smaller value is preferred

g.       Current Ratio – Should be greater than 1

h.       Dividend – Increasing for the last 5 years

2.       Do you understand the products or services offered by the company?

3.       Will people still be using this product or service in 15-20 years from now?

4.       Does the company have a low-cost durable competitive advantage?

For example, Colgate! It has become such a common name in Indian homes that Colgate is considered as a synonym to toothpaste. Another example is Cadbury– the chocolate producing company. This company is dominating its industry and the people are even ready to pay a lot more to buy its products. Similarly, Tata Motors has got a moat in ‘truck’ sector. Tata Trucks has been in dominating in the Indian automobile sector for the last 5 decades.

5.       What is the company doing that its competitors are not?

To understand better, let us analyze the Indian automobile sector. There are a number of automobile companies in India. However, when we consider the passenger vehicles (Cars and SUVs), Maruti Suzuki is the leading company in India. There are a number of competitors against Maruti in this sector like Tata Motors, Hyundai, Honda, Ford etc.

Nevertheless, Maruti Suzuki is dominating because of the easily available service centers that it provides. Maruti’s service center can be found on every corner of the streets. It’s really simple and easy to get a Maruti car serviced even in small cities. On the other hand, try to get your ‘FORD’ car serviced. You will rarely find any authentic ford service center around you. That’s why people prefer buying Maruti cars in India.  And hence, Maruti Suzuki is able to increase its sales consistently and give good returns to its shareholders.

6.       Does the company have a big debt?

7.       Is the company’s management efficient and qualified?

8.       Is the company constantly in the news and overly popular?

 

https://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/slideshows/how-to-pick-stocks-7-things-you-should-know?slide=9

 

https://tradebrains.in/how-to-select-a-stock-to-invest-in-indian-stock-market/

Why are pharma Stocks rising in FY21?

Before we start explaining  the reasons as to “why the pharma stocks are rising in FY21?”, lets first briefly understand the pharma sector of India so that we get an idea of what and how much we are talking about in terms of business or money.

India is the largest provider of generic drugs globally. Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40%of generic demand in the US and 25 % of all medicines in the UK.

 The world has seen an impact of the COVID-19 on the stock markets globally. While many indexes and stocks fell, the pharma sector outperformed and also rose during this period. This unusual rise is not short lived and is showing a rise since 4-5 months from March 2020 to July 2020. This run is still continuing. The question that comes to our mind is why are pharma stocks rising?

The first reason is global trends. The pharma stocks are rising globally. Not only in India, the US pharma Indexes showed growth since march 2020.  The Pharma sector has been seen as a good option for growth during the COVID-19 times and this trend is prevailing globally.

The next reason is stability in the sector. Unlike Auto and other related sectors where profits of the company depend on the economy, the pharma sector has been in stable outlook during all conditions of the economy. This is because medicines are required in all situations and there is a stable demand for it. This has led to demand in the sector even in difficult times of the economies.

Third reason is that India is the main source of medicines globally. And this has made Indian pharma companies show growth and demand in their stock value from all investors. Further during COVID-19 times the pharma industry has been the prime sector for growth due to demand in various drugs even though no vaccine has been fully successful. Not to forget that we are in the process of making the covid vaccine. If successful, the demand will be huge and so will be the growth in the pharma sector.

Last but not the least people are looking for stable options to invest money in and the pharma sector is the most stable sector in the current situation.

The pharma sector looks good for growth in the long term. Good results of many pharma companies have been an indicator of its robustness in economic value and thus has been considered valuable stock entities in the current scenario. The rise should continue for some more time till the market has peaked in the pharma industry. With very few options to invest in this difficult time of economic condition the pharma sector is an attractive investment segment.

Medicine spending in India is projected to grow 9-12 per cent over the next five years, leading India to become one of the top 10 countries in terms of medicine spending.

Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers, which are on the rise.

The Indian Government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.

 

https://www.angelbroking.com/blog/pharma-stocks-shine-amid-rising-coronavirus-cases-in-india#:~:text=The%20COVID%2D19%20outbreak%20has,ever%20since%20the%20coronavirus%20outbreak.

https://economictimes.indiatimes.com/markets/expert-view/why-are-pharma-stocks-rallying-surajit-pal-explains/articleshow/76321219.cms

Reference: https://www.ibef.org/industry/pharmaceutical-india.aspx

Price of land

Recently India and China were involved in border conflict. Why were they in conflict? Ofcourse age old reason land. China occupied a piece of land in Indian territory and indian soldiers retaliated. In the process both sides lost lives. All this raises one question what is the 'price of land'. Is life meaningless without land. Soldiers should die for land. The piece of land which comes in remotest of area under very bad weather condition and will not be populated in the next 50 years. So is land so important that 20 lives of indian soldiers should be lost over this conflict. Are their no other ways of resolving a conflict or a land that has been lost. Will that land be of use except for map drawings. So how should that land be priced? Over life or over self respect and self esteem.

Where are markets headed ?

The markets in recent times have been rising unconditionally and are in conflict with the real economy. The gap between the real economy and the stock market remains unusually wide. This is the case everywhere, including India. With India’s GDP print for Q4 of FY20 coming in at 3.1% and forecasts for FY21 pegged at -5% (by some prominent brokerages/rating agencies), the recent stocks rally is baffling many.

With grim growth outlook and badly affected economies the world over, the markets are in bad shape. The markets are always correlated positively to the economy be it national or global. But recent times has shown divergence to the correlation. While economies are suffering from the ongoing pandemic, market which initially shed much are recovering. Take for example the indian nse / bse markets. These markets shed and fell by 20-30% in march end. The outlook was bad and market remained at this position for next two months. But just couple of weeks before the revival of economic activities in the country in june, the markets began to revive. Negative rating by credit agency of the country and its companies could not prevent the rise of the market. The were also growth forecast which showed that the economies were in bad shape. But still market recovered. So why did this divergence to the real economy happen in the market ?

There are few worthy reasons for this. The market at its low provided investment opportunity plus nations declared packages to revive economy. The countries showed that while there was a slack in demand, the future held revival of demand and established players benefitting from it. All these reasons along with surplus of cash with investors which they couldn't plan to divert in other investment avenues led to the revival of the market. Investors invested their surplus in established companies whose operational profits were affected by the pandemic but which promised to revive growth in coming years. There also investment in companies which showed solidarity to difficult times. All this became the reason for gap in real economy and markets.

So where are markets headed. My assumption is that markets will rise to a level and fluctuate. The volatility will give opportunity to invest in good stocks but there will be unpredictability. Companies which come out strong and unaffected in this crisis will give returns to its investor while there may be cases where companies will lapse. Thus investors will have to be very smart and careful while reading the market and investment opportunities in companies. One advice would be to look into companies with good management and promising future.