scorecardresearchWhich are the key sectors & indices that draw maximum interest from the ETF investors

Which are the key sectors & indices that draw maximum interest from the ETF investors

Updated: 17 Mar 2022, 10:24 PM IST
TL;DR.

Financials, healthcare, real estate, energy, consumer staples, and communications are the broad categories that broadly comprise the Indian stock market. Healthcare and utilities, in particular, have steady demand in both good and poor times, making them recession-resistant. Let us give a snapshot of key sectors that draw the maximum interest of investors

An ETF is a basket of securities that are traded on the stock exchanges.

An ETF is a basket of securities that are traded on the stock exchanges.

The stock market is split into various primary sectors, each of which represents a different aspect of the economy. There are a variety of publicly listed stocks in each sector that operate in the same general region. If you are an investor looking to diversify your portfolio, you may want to buy into firms across a slew of industries via a mutual fund. 

And if you want to play safe and buy funds that invest into stocks in the same proportion as an index, and which are tradeable in the market as well, then you can explore an ETF or exchange traded fund.

But first, let us understand what precisely is an ETF? It is a collection of assets whose units are traded on a stock market. They are pooled investment funds that invest in a variety of diversified securities such as stocks, bonds, and commodities to match an underlying index. ETFs may be traded at any time in the market, but to invest in an ETF and execute purchasing or selling operations, you will need a demat account.

It has grown in popularity, especially among passive investors. Now let us look at some important sectors of the ETF market and their returns with Nifty in the preceding fiscal year.

Sectors that posted maximum returns

Health-care services

It is always rewarding to make a health-care investment. When you engage in the health-care industry, you are really investing in a lot of other sectors. This is because the industry includes biotechnology corporations, medical device makers, hospital management firms and a variety of other businesses. 

People will require medical assistance in both good and bad times, thus the sector is viewed as both a development potential and a defensive play. It is almost difficult to build a balanced portfolio without some health care equities or ETFs, given that it is the second-largest business.

The Nifty Healthcare Index is meant to represent the health-care industry's performance and behaviour. The Nifty Healthcare Index is made up of a total of 20 equities from the National Stock Exchange. The return posted by the healthcare index in the year 2020-21 was 70.7 percent.

 

DateTotal Returns Index
01-April-20204941.2
31-March-20218435.6

Utilities

Electric, gas, and water businesses, as well as integrated suppliers, make up the utility industry. Many investors see utilities as long-term investments with the goal of generating consistent income for their portfolios. When there is an economic slump, it is perhaps the most defensive bet in the exchange funds market.

This Nifty Index is meant to reflect the behaviour and performance of a broad portfolio of businesses that represent the commodities sector, which includes industries such as petroleum products, cement, power, chemical, sugar, metals, and mining. The index posted an annual return of 104 percent in the year 2020-21.

 

DateTotal Returns Index
01-April-20203058.68
31-March-20216234.43

Oil and Gas

The Indian oil and gas sector had an exciting season, with several company announcements and plenty of other government reforms. While some businesses have benefited from them, few have had to bear the brunt of the consequences. External causes such as petroleum price changes, currency rate fluctuations, Iran sanctions, the Euro Zone debt crisis, and others have all contributed to the rise in volatility.

The Nifty Oil & Gas Index aims to represent the performance of stocks in the oil, gas, and petroleum industries. It comprises a maximum of 15 companies from the National Stock Exchange. As we can see from the below figures, the return posted by the oil and gas index was 78 percent.
 

DateTotal Returns Index
01-April-20204969.28
31-March-20218855.4

Finance Sector

Firms and institutions that provide financial services to both corporate and individual consumers comprise the financial industry. Banks, investment funds, and insurance firms, for example, are all part of this industry. Mortgages and loans account for the vast bulk of revenue earned by the industry. The financial sector's strength determines the economy's overall health.

The Nifty Financial Services Index is intended to represent the behaviour in terms of the Indian financial market, which comprises banks, financial institutions, home finance businesses, insurance companies, and other financial services firms. The return posted in the finance sector in the fiscal 2021 was 76 percent.
 

DateTotal Returns Index
01-April-202010839.5
31-March-202119096.83

Communications

Cable firms, internet service providers, wireless carriers, satellite companies, and a variety of other businesses make up the telecommunication services industry. Consumers provide these businesses with ongoing money, yet some segments of the sector are undergoing fast transformation. Individual telecom companies may have a greater level of volatility, but the telecom industry as a whole has shown acceptable long-term growth.

In India's economy, the telecommunication industry has played a significant role. The Nifty sector index was created by NSE Indices to provide a benchmark for the Indian IT sector. As we can see from the figures mentioned below, the return posted by the IT index was 118 percent in fiscal 2021.
 

DateTotal Returns Index
01-April-202015304.33
31-March-202133375.16

Stock market investment via sectors is important because they simplify portfolio management for investors and portfolio managers. They assist them in placing the appropriate funds in the appropriate portfolio.

It is also frequently recommended that investors diversify their investments to increase their chances of success. The Indian market is divided into eleven sectors, which include industries like financials, healthcare, real estate, energy, consumer staples, and communications. The various sectors encompass a wide range of industries.

Some sectors tend to post greater returns than their counterparts. Sectors, such as healthcare and utilities, have generally consistent demand in both good and bad times, making them recession-proof. If properly understood and invested in the suitable area, investing in ETFs can generate handsome gains. Understanding the industries, carrying out your own research, and then investing in the key factors to rake in a moolah.


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First Published: 10 Mar 2022, 08:54 AM IST