Diversify Your Portfolio with Sector-Based Investing | CORPORATE ETHOS

Diversify Your Portfolio with Sector-Based Investing

By: | March 28, 2018

It is quite easy to advise not to put all your eggs in one basket. But, how to find more  baskets to invest your hard-earned money? One way of looking at investing in equities may be to go by the classification of stocks as Large Cap, Mid Cap and Small Cap. You might have noticed that most portfolio managers now focus on small cap where appreciation is likely to be highest and give lesser weight to large caps.


Then there are cyclical stocks whose fortunes vary according to seasonal trends such as monsoon, summer, harvesting and sowing seasons. Some of agri-commodities, commercial crops and processing companies may come under this category. Then there are stocks that turn volatile on some news which may be bad or good for the company.

For the past one and a half years, I have been tracking stocks based on commodity, sector or product categories on a weekly basis in my column in Corporate Ethos (www.corporateethos.com/opinion). The latest one is on the prospects of consumer internet companies such as Just Dial, Matrimony.com and Info Edge (I) Ltd, promoters of Naukri.com.  (http://corporateethos.com/opinion/consumer-internet-cos-time-to-buy-info-edge-matrimony-just-dial/)

The sectors covered so far include steel, chemicals, fertilizers, paper, plywood, power, FMCG, Zinc, Aluminum, Bauxite, Courier, Logistics, Footwear, Luggage, Crude Oil, Lubricants, Automobiles, DTH and 80 odd sectors.

Each column begins with a brief introduction to the sector, market estimates, growth projections, major companies in the industry, followed by analysis of three or four companies in the domain. The analysis is a mix of fundamental and technical analysis with an outlook for the short to medium term. The report concludes with a summary on the pros and cons of exposure to that sector.

Except in extremely volatile market when every calculation goes awry, my target range was reached ahead of the predicted date.

The objective of this stocks column is not to make any trading call either on a very short term or medium term but to give an idea to new investors on how to analyze stocks, how to understand the industry in which it operates and pick the fundamentally strong stocks to invest.

I hope all readers would benefit out of investing in a diversified basket of equities and sector-wise investing is one method any one can try.

The advantages of sector-wise investing are: 1) It creates better awareness and knowledge of sectors 2) The position of a particular company in that industry, its fundamental strengths and weaknesses 3) The latest developments in the sector such as import tariff, FDI or mergers, acquisitions that may turn the fortunes of stocks upward or down ward 4) How to use simple technical strategies to buy and sell.5) The performance of the industry, historical trends, strengths and weaknesses.

You might be getting trading tips from various sources but Securities and Exchange Board of India (SEBI) and exchanges have warned time and again not to depend on such tips to invest.  There may be some vested interests behind some recommendations to buy and sell, therefore, it is better to keep away from it.

I reiterate V Rajendran, MD of Capstocks  & Securities India Pvt Ltd had told me in an interview ( http://corporateethos.com/the-markets/discount-brokerages-algo-trading-killing-retail-broking/) that  an investor should never trade but only invest. With algorithmic trading it is no longer easier to make money doing intra-day or very short term trades. But if you can identify fundamentally sound companies to invest with a duration of 6 months and above, chances are you will be making reasonable gains with much lesser risk.

Happy investing!!