According to experts, India appears to be an oasis amongst the economies globally, battling historical inflation, rising energy prices and a slowdown in growth. A recent Morgan Stanley India report throws light on the fact that India may become the world’s third-largest economy and stock market by the end of the 2030. To gain handsome returns, it has been advised that long term investors must diversify their portfolios across multiple sectors to minimise portfolio risk.
Besides diversifying the portfolio the investors must also take care about where they are investing. It is advisable to do proper research or else take help of the experts to find out the best stocks for long term investment. The fundamental analysis of stocks will help you to pick the right sectors and the right stocks to invest in.
Here’s a detailed analysis of the best sectors for your long-term investment goals.
Identifying The Most Promising Sectors
Let us help you in understanding the best sectors for long-term investments.
- High-growth sectors – Investing in high-growth sectors are likely to fetch higher returns on investment. While the market is growing, look for industries performing the best.
- Timeframes – While investing for long term, it is important to scrutinise sectors across different time frames. This can estimate whether the industry could perform well in the future.
- Other metrics – Various factors other than profitability may impact sector performance, such as survival during a particular time horizon and sustainability.
Investors must understand stock market basics such as what is Demat account, how stock markets work, how to invest in the markets etc., before designing their portfolios.
Best Sectors For Long-Term Investment
Here are the top sectors to look out for designing a portfolio for the long term.
#1: Information Technology –
India has already striven hard to make its entry into the digital world and is taking active steps towards a digital economy. Most industries, such as e-commerce, fitness, health, education, etc. have partially moved online and are thriving. This has led to an increase in demand for IT infrastructure. Many start-up companies are implementing advanced technological features that could make them world leaders in their niche in the coming years. Due to high growth potential, IT companies are typically considered safe investments for the long term. Various factors can determine the growth potential of the IT sector, such as economic needs, technological developments, Digital India, etc. Many start-up companies have also registered for public offerings, intending to list their shares on the Exchanges. Investors must watch out for such upcoming IPOs of IT companies as these investments could result in substantial wealth generation.
#2: Pharmaceuticals –
India is one of the world’s largest exporters of generic drugs. The rapidly growing ailments and the Covid-19 pandemic have served as a blessing in disguise for healthcare companies. The pharmaceutical sector has been under a long-term bear market since 2014. However, the recent turn of events has brought a trend reversal, with the healthcare sector recently entering into the long-term potential bullish market. The pandemic caused an increase in the demand for medicines and drugs.
Moreover, consumer expenditure on medicines for chronic diseases is also expected to increase. The pandemic has built doubts in people’s minds about hygiene and safety, making them more cautious. This could maintain the demand for healthcare-related products paving the way for pharmaceutical companies to flourish.
#3: Fast Moving Consumer Goods (FMCG) –
The FMCG sector always remains in demand irrespective of current market conditions. The constant demand helps generate consistent returns even if the economy is experiencing trouble. FMCG products will always remain in demand, unlike many sectors that follow a contraction and expansion cycle. The urban sector primarily remains the main contributor to FMCG sector revenue. The industry still has a lot of growth opportunities in rural India.
#4: Infrastructure –
India isbelongs to a developing economy, and therefore there is a considerable growth potential in the infrastructure sector. Various initiatives by the government, such as metro projects, redevelopment of housing societies, and building of new airports, contribute to higher growth potential for infrastructure companies. Infrastructure companies are the key players in all such projects, making them suitable for long-term investments.
#5: Telecommunication –
India is one of the world’s largest data consumer countries, with an average usage of 8.9GB per consumer. The demand is expected to double by 2024. The sector shows signs of exponential growth with a daily increase in app downloads, subscriber base, and affordable tariffs. The work-from-home module initiated due to the Covid-19 pandemic has increased data usage substantially. The industry has recently witnessed foreign direct investments from global giants such as Google, Amazon and Facebook, along with a few top private equity players. Moreover, existing consumers’ demand for bandwidth is also predicted to increase. The telecommunication sector, therefore, shows excellent prospects for a safe long-term investment.
Conclusion
Portfolio diversification forms the basis of minimising investment risk. Growing returns from a different industry can offset diminishing returns from a particular sector. Creating aDesigning diversified portfolios for long-term horizon can help generate more substantial wealth for investors. While creating your portfolio, ensure you invest in high-growth investments that can bring in fetch greater returns over your preferred time horizon. Moreover, it is critical to evaluate other factors, such as competitor analysis, while selecting companies within a specific sector. Ensure you conduct thorough diligence and understand the company’s business model before making an investment decision.
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