First-time stock market investors can bet on these sectors and categories, say experts However, for those beginning their stock market journey, it is quite difficult to find the right sector or categories to bet on. ET Wealth asked the experts which sectors and categories, the first time stock market investors can invest in
The Covid pandemic has brought many first-time investors to the stock market. This record-high number of demat accounts opened since the pandemic is a testament to this. The index touching record highs have further fuelled the opening of demat accounts. While many have already taken a plunge into equities, there are more who are yet to start and are looking for the right stock or valuation to start their stock market investment.In the top-down investment selection approach, you need to be sure about the sector or category before picking the right stock. As the growth of different sectors varies with time, many first-time investors would like to know which sectors are promising in 2024.
However, finding a sector or category to bet on can be overwhelming for these investors. Stock market experts advise that proper research and due diligence be conducted before investing in a stock. This includes reading annual reports of the company, studying company valuation, doing a peer review and understanding the equity-to-debt ratio. ET Wealth analysed the data on the performance of various sectors and spoke to stock market experts and financial planners to find out which sectors first-time stock market investors can bet on.
How different sectors performed
Here we have taken the BSE Financial Services (including banks), BSE IT, BSE Large Cap, BSE Capital Goods, BSE Consumer Durables and BSE FMCG indices. The data is taken from April 1, 2014, to March 28, 2024 - i.e., from FY 2014-15 to FY 2023-24.
ET Online(For ease of comparison all the indexes have been equated to 100 on April 1, 2014.)From the chart above, it can be seen that BSE Consumer Durables has performed better than other sectoral indices. The CAGR for this index is 22.97%. Similarly, BSE Capital Goods has given 17.67% in the last 10 years. BSE Information Technology and Financial Services have given 14.84% and 13.95%, respectively. The BSE Large Cap and BSE FMCG indices have given 12.82% and 10.72% CAGR, respectively. In the last 10 years, all the sectoral indices have given double-digit returns.
What experts recommend about sector selection
Nishit Master, Portfolio Manager, Axis Securities: For first-time investors, we recommend the capital goods and consumer sectors at this point in time. We expect the next few years to witness a significantly strong capex cycle, which will help capital goods companies with revenue and margin expansion. Also, after a slowdown in the consumer space, we believe there is a high probability that the sector will witness a revival this year.
Shrikant Chouhan, Head Equity Research, Kotak Securities: A first-time stock investor can bet on the information technology (IT) and the banking and financial services (BFSI) sectors. The IT sector contributes around 14% to the Nifty 50 Index. India's share in global outsourced spending is ~57-58%. Indian IT has the potential to see better growth and market share gains due to higher IT spending and outsourcing by enterprises. The adoption of tech-enabled services is growing by leaps and bounds, government policies are supportive, and global demand for IT services is improving. More importantly, by investing in the IT sector, investors are participating in innovation. Currently, IT sector valuations have become more palatable.
On the other hand, BFSI needs to be on the radar of every investor looking to start their stock market journey as the sector plays a crucial role in economic growth. In a country like India, where there is severe credit under-penetration (with household credit to GDP at ~37.7% vs 55% to 110% in developed countries), there is a sizable runway for growth. Banking contributes around 33% to the Nifty 50. The lending industry is currently witnessing one of its best times in terms of asset quality and there does not seem to be any material risk in the near future. The timely and proactive regulatory measures of the RBI (Reserve Bank of India) in the last 3-4 years are also a key positive in aiding controlled and sustainable growth. BFSI has historically been a favourite of FII (foreign institutional investors) and rate cuts in the future could trigger inflows in the segment.
Dilshad Billimoria, Board Member, Association of Registered Investment Advisers (ARIA): For the first-time investor, it is best to invest in large-cap and blue-chip stocks in the current stock market. This is because once the Reserve Bank of India starts cutting the key policy rates, the large-cap index would be the first to go up and this will make blue-chip stocks the biggest gainers. Further, if the US Federal Reserve starts cutting interest rates this year, foreign investors' money will also rush to large-cap stocks.
This story originally appeared on: India Times - Author:Faqs of Insurances
