In which sector you should put your money if you are investing in the stock market, there is one way to invest in the stock market, which is a top-down approach The top-down approach means which country you want to put your money in And in that country which sector you want to put your money in, and in that sector, which company you want to put your money in And bottom-up approach means, you decide which company you want to invest your money, which sector the company belongs to, and then which country that particular sector belongs to So if we talk about which sector we should put in our money, that means the top-down approach, then we need to find out how to identify the Right Sector,
Friends In this post, I am going to talk about how to do sector research We will try to understand for you which sector is the Right Sector Every human being has a mindset of working in a certain manner, maybe you will like a certain sector, maybe I will like a certain set of sectors The more you invest based on your thinking, the better you will be able to invest in a relevant sector For example, if I am from a financial market background, and my business is also from the financial market, then I will be able to understand that sector in a much better manner I am able to understand how the broker business is doing, I am able to understand how a bank business is doing and how are NBFC doing because this belongs to my core business Similarly, if you look around you in your job or in your business,
the sector which you have a better understanding and better hold, you will be able to identify stocks in those sectors, which will give you a better return on your capital The second concept I want to discuss with all of you is how many types of sectors are there So, if I have to classify the number of sectors, I would say there are three kinds of sectors one is a cyclical sector, one is a growth sector, and another one is the value sector cyclical sectors mean the ones which are dependent on business cycles as you all know that ultimately all the businesses move in a particular cycle And those cycles are to a certain extent dependent on interest rates
They can also be dependent on commodities Ultimately there is a boom in a business and there is a bust in the business and it is what works in a particular cycle For example, in case of agriculture products, when the price of an agricultural product goes up, many farmers will come and start producing that particular agriculture product because of which there will be a lot of supply of that agriculture product and the price will go down after the price has gone down Now the farmers will have a disincentive to produce that agriculture product because their yield has gone down significantly And a lot of farmers shift from that agriculture product to the other agriculture product That means the cycle is the most natural phenomenon and businesses also witness similar cycles in their business tenure So, if you want to invest in a cyclical sector or stock in a cyclical sector, then you would prefer to invest in a sector which is in a down cycle and is ready to recover from the down cycle to the upcycle Friends, we will take some examples to explain this concept, but let me first explain a different type of sector, and then I will go to a few specific examples I hope you have understood about the cyclical sector Now, the second sector which I want to talk about is the growth sector as human beings Our Propensity to consume is going up significantly as we want to consume over and over again and new things regularly First, we used to consume a lot and now, we are consuming electronic items a lot So, this habit of consuming is leading to a new growth sector emerging which is getting into the path of hyper-growth as human beings are consuming very very aggressively now For example, FMCG which is a consumption-driven sector, for example, Hindustan Lever or Dabur or you talk about smaller companies like Emami these are all high growth companies because the consumption demand of their product is very, very high On a continuous basis as a human being, we have been consuming For example, online hardware electronics the online purchase which we are doing through e-commerce companies,
so all these come under high growth sectors, and the pattern of investment in these high growth companies is very different from your investment in other categories of sectors The third sector is the value sector Value sector means there is a hidden value inside this particular sector And when the time comes, this hidden value will get unlocked The value and locking can happen through the various forms, for example, a particular sector has a lot of land banks and that land bank can get converted into value when there is some real estate activity in that land back Or for example, availability of cash in the books So,
if there is a lot of cash available in a company’s book, and that cash gets utilised for some productive purpose, that’s the time some kind of value unlocking can happen in that company So, there are three kinds of sectors one is the cyclical sector, which is dependent on business cycles The other is the value sorry the growth sector, which is dependent on the growth of the business and the third is the value sector, which is derived out of the hidden value inside the company Friend, in this post, I’m going to talk about one sector from the cyclical sector There are other sectors also which I will discuss with you, but today let’s just talk about one sector which is a cyclical sector and the sector is the real estate sector Friend,
real estate is a very very big sector, as far as the cyclical sector is concerned Why it is cyclical is because it is dependent on interest rates Now, the higher the interest rate, there will be less demand for real estate consumption The lower the interest rate that means the Home Loan Rate, there will be a higher demand for the real estate properties So, this is simple maths which I’ve explained to you If you see India’s real estate sector for the last 12 years, the sector has been laggard sector for periods of time why because the interest rate has been on the higher side, I will not say that interest rates were very, very high,
but interest rates were still on the higher side over a period of last so many years But for the last six months to one year, interest rates have nose driven significantly means, any cyclical sector, which is dependent on interest rates will witness a very, very strong recovery in future So, real estate is one of those cyclical sectors And if you see because of the current COVID situation, there is more demand coming for residential real estate in the market right now People want to expand their residential homes, people want to expand the horizon of their residential homes and hence, there is an increasing demand for the residential property market right now So, there is double benefit one,
there is a build-up demand and other there is a low-interest rate because of which there is a propensity to build up demand Hence, the real estate residential sector could be considered to be a good sector to invest in the market right now Now, the second question is in this sector, which stock has to be identified for investment purpose? search on nse there is a sector section, which we have given to you If you go inside this sector and type real estate, you will get all these stocks which are there in the real estate business right in front of you There are multiple parameters, which we have given to you to evaluate the company’s MarketCap, the price-earnings ratio, the return on equity, etc So, if you look at the list of companies inside that sector,
you will be able to find out companies who are relatively expensive or better priced than the large companies in that particular sector So you will be able to identify stocks Now, what you intend to do is look at the price movement of those stocks And then if you are convinced with this sector and those stocks, I am sure that you will be able to generate wealth for yourself by investing in these stocks So, friends, this was just a process in which I wanted to explain to you how to identify a sector, a theme around the sector, and get inside that sector and find out stock that could be relevant for you So I’ve given you a more or less understanding of this process
The more you get detailed into it, the better you will be able to understand and comprehend this whole process and work it to your advantage Same thought you can apply in the growth sector also Same thought you can apply in the value sector also To understand the process of identification of a sector and identification of stock from that sector and then finding out which stock is a good stock for you, I am going to create more posts and help you understand this whole process,
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