Indian markets have been moderating after hitting record high on July 20, 2023. The benchmark indices have lost 2 percent in the last one month following similar losses in global peers due to the rising dollar and spiking US bond yields. This, in turn, has alarmed investors that US Federal Reserve will have to tighten rates more to rein in inflation. Meanwhile, foreign investors have also been on a selling spree in August, further weakening investor sentiment in India.
Experts believe that there are no immediate triggers that can lead to a sharp rebound in the market, but added that the weakness in the market will make valuations reasonable.
In this consolidating market environment, are defensive stocks a good bet? But let's first understand, what exactly are defensive stocks.
Defensive stocks, as the name suggests, are stocks that are less affected by the volatility in equity markets and provide stable returns irrespective of how the overall markets are performing. These are stocks from well-established companies whose products are always in demand throughout the year regardless of the economy or market trends. Even though such stocks do not have great growth potential, they will protect your portfolio from losing substantial value in case of a bear market as against other equities. Investors generally use defensive stocks as a cushion to soften the impact of market volatility.
Is this the right time to buy defensive stocks? Let's see what experts say:
Manoj Dalmia, CEO of Proficient Equities: Incorporating defensive stocks within your investment portfolio offers a valuable shield during market downturns, ensuring consistent returns. A prudent strategy involves considering PSU stocks as a component of your portfolio due to their recent commendable performance. Stocks associated with defense, shipbuilding, and banking sectors also present promising opportunities for inclusion. Noteworthy selections can be Union Bank of India, Mazagon Dock Shipbuilders, and REC. These choices reflect a tactical approach to curating a resilient investment portfolio that can weather market fluctuations effectively while aiming for stable growth.
Suman Bannerjee, CIO, Hedonova, a US-based hedge fund: I feel that this could be a good time to consider defensive stocks. These stocks tend to be more stable even during uncertain times. I prefer investing in sectors like FMCG and PSU. My tops picks are HUL, Marico, Coal India, IOCL.
Preeyam Tolia, Senior Research Analyst - FMCG, Axis Securities: We believe a defensive sector such as FMCG is a good bet in an uncertain market environment like the current one. Moreover, the outlook on overall consumption is likely to improve as rural recovery is likely on the card on the back of increased government spending, higher wages and increased urban remittances. Further decline in raw material prices is expected to aid the sector's margins further. In the FMCG basket, our top picks are ITC, Nestle, HUL, VBL and CCL Products.
T Manish, Research Analyst, SAMCO Securities: With markets in uncharted territory, any bad news would probably cause the markets to fall but even during such harsh times, consumption-based companies would continue to perform well. Further, post Covid, India is tilting towards a consumption-led economy from a savings economy, propelling an increase in consumption levels. So, these companies not only benefit individuals from a portfolio protection point of view but also from an appreciation point of view. The cherry on the cake is, these companies usually disburse high dividends resulting in improved returns. Therefore, it is a good time to accumulate defensive stocks in an individual’s portfolio such as ITC, and Jyothi Labs.
