In order to beat the average stock market returns, investing in sectors that have good growth potential is a smart way to go. Some sectors tend to outperform the broader indices due to the robust demand for those goods and services in the economy despite the market condition.
To invest in sectors, you can either directly buy stocks from these sectoral indices or invest in sector funds that concentrate on stocks specific to them.
Let's look at 4 top sectors to invest in that can outperform benchmark indices in the long run.
This sector has been in demand since the 1990s when the internet boom started in the country. And ever since, the usage and dependency on the internet, data, and information have only increased and the trend is not going anywhere.
Now with the internet firms launching in different sectors like eCommerce, edtech, fintech and older companies going digital and even the government boosting the Digital India campaign, the demand for the tech industry will only fly.
According to experts, many factors are boosting the growth for this sector like global digitization, technological advancement, Digital India roadmap, among others. The revival of the US economy and the strengthening of the dollar is also good news for the sectors. Even when the whole nation was battling the pandemic, deal wins for the sectors did not get an impact but rather kept rising indicating the potential and demand for tech services across the globe.
Considering these factors, the IT sector can be treated as one of the best as well as safe sectors for long-term investment.
The sector mainly contains stocks that create software and provide various IT and consulting services, data processing, internet security, etc. Some major players of the sector include TCS, Infosys, HCL, Tech Mahindra, etc. These companies have already established brand value as well as given exemplary returns to their investors. Such companies will give stable and consistent returns in the long term as well because of the continued demand in the sector. However, if you want companies with better growth potential you can invest in mid-cap IT companies like L&T Infotech, Mindtree. However, the risk will also be a bit higher.
This is another sector where demand will never go away. People have been using soaps, shampoos, oil, toothpaste for the better part of a century and will continue even after 10, 20, 30 years. There might be some changes in the products or new innovations but the use of such products will be extinct.
Some FMCG companies like HUL, ITC, Britannia, Dabur, Nestle, etc are very common household names. It would be very difficult to find a single house in the country that does not use products manufactured by these firms. The majority of these people have been using them for a very long time.
While the demand for such products increases when people have more money or purchasing power, even in a weak economy their demand does not depreciate much as compared to other industries. People can stop buying houses or cars during the recession but not soaps and detergents. These are basic necessity items.
Health Care Sector
Pandemics, vaccines, new lifestyle diseases, and rapid advancements in drugs, treatments make this sector a good bet for long-term investment. There has been a lot of evolution and innovations in this sector in the past decade and an even higher potential for the future.
When the pandemic hit, healthcare was one of the very few sectors that did not take a massive dive. It is also one of those sectors that are always in demand despite the state of the economy or markets. It continues to perform because people still get ill and need to visit hospitals, get medicines regardless of the state of the economy.
Innovation across the sectors like new technology, better drugs, vaccines will lead to new investment opportunities in the future. Also, the sector has been getting support from the government for these new innovations further boosting the sector.
The sector includes hospitals, drug manufacturers, diagnostic companies, medical instrument makers, etc. Some major names from the Indian healthcare industry include Lupin, Dr. Reddy's, Sun Pharma, Divi's Labs, etc.
From airports and ports to highways, with the government focussing so heavily on the infra development of the country, these companies have a huge growth potential in the future.
According to the Department for Promotion of Industry and Internal Trade (DPIIT), infrastructure activities accounted for 13 percent of the total FDI inflows of $81.72 billion in the country. This shows the intensity of the infra development going on in the country and there is still a long way to go.
Infra firms are one of the key players of a growing economy like India and hence prove to be good long-term investment bets. Some major infra companies include L&T, Adani Ports, GVK Infra, among others.
One must note that while the above-mentioned sectors have huge growth potential, there is still a certain amount of risk involved. Instead of putting all resources in one sector, it is always better to diversify and divide your assets among sectors you believe will do better in the future.