India's Share Market: Sectoral Winners and Losers

_{Published on: 05 Oct, 2024 07:14}

1. The last 20 years of the Indian stock market have shown multiple winners and loser sectors.
2. FMCG is a clear winning sector it has a compounded annual growth rate (CAGR) of close to 20% which could have resulted in 1 lakh rupees multiplying to 38 lakhs.
3. The second winner is the auto sector with a CAGR of 19.83% and the third winner is the financial services sector with a CAGR of 19.02%
4. The obvious losers are the PSU banks and the pharma industry with a CAGR of 11.76% and 14.32% respectively.

Sectoral Indices Return (TRI) On 30 September 2024 (% CAGR)

Index	1Y	3Y	5Y	7Y	10Y	15Y	20Y	25Y
Nifty 500	41.54	18.44	22.28	17.23	15.48	13.8	16.41	15.15
Nifty Auto	68.22	37.82	30.6	15.24	14.22	17.56	19.83
Nifty Bank	19.89	13.24	13.38	12.54	13.86	13.57	17.64
Nifty Energy	63.35	26.49	25.74	21.83	19.24	12.95	15.98	-
Nifty FMCG	29.45	19.6	18.06	16.99	14.43	18.27	19.96	14.48
Nifty Financial Services	24.82	11.21	14.28	14.53	15.39	14.75	19.02	-
Nifty Healthcare	52.68	18.84	27.72	17.38	10.74	15.77	-	-
Nifty IT	34.69	8.25	24.42	24.33	16.23	17.13	16.88	13.87
Nifty PSU Bank	29.41	41.37	25.13	12.73	7.95	6.24	11.76	-
Nifty Pharma	51.97	18.1	26.19	15.05	8.64	14.74	14.32	-
Nifty Private Bank	15.63	11.68	10.83	10.58	13.58	15.44	-	-
Nifty Realty	91.44	29.26	34.01	22.48	18.98	4.7	-	-

1. Each investment period has a clear winner and loser sector.
2. In the last 20 years, FMCG, financial services, auto, and IT sectors outperformed the nifty 500 whereas the losers are pharma and PSU banks. 
3. For a 15-year investment period, winners are FMCG, auto, healthcare, and IT, whereas the loser is the reality sector.
4. Last 10 years, FMCG underperformed compared to the nifty 500.

Sectoral Performance Review: Uncovering Trends and Insights for Informed Investing

As investors navigate the complex and ever-changing landscape of the stock market, understanding sectoral performance is crucial for making informed decisions. The latest data on Sectoral Indices Return (TRI) as of September 30, 2024, provides valuable insights into the winners and losers across various investment horizons. In this comprehensive analysis, we'll delve into the performance of key sectors over 1, 3, 5, 7, 10, 15, 20, and 25 years, highlighting trends, outliers, and key takeaways.

Long-Term Outperformers

Over the last 20 years, four sectors have consistently outperformed the Nifty 500:

• FMCG (Fast-Moving Consumer Goods): With a 19.96% CAGR, FMCG has demonstrated remarkable resilience and stability, driven by steady demand for essential goods.

• Financial Services: This sector has delivered a 19.02% CAGR, underscoring its growth potential, driven by increasing financial inclusion and regulatory reforms.

• Auto: With a 19.83% CAGR, the auto sector has proven to be a rewarding investment avenue, driven by growing demand for vehicles and innovation in electric and autonomous vehicles.

• IT: Information Technology has yielded a 16.88% CAGR, showcasing its ability to drive long-term growth, fueled by digital transformation and emerging technologies.

In contrast, Pharma and PSU Banks have underperformed over the same period, with CAGRs of 14.32% and 11.76%, respectively. Pharma's struggles can be attributed to regulatory challenges and patent expirations, while PSU Banks face issues related to asset quality and governance.

 

For a 15-year investment period, the winners are:

• FMCG: Maintaining its long-term momentum with a 18.27% CAGR.

• Auto: Consistently delivering strong returns with a 17.56% CAGR.

• Healthcare: This sector has generated a 15.77% CAGR, driven by growing healthcare needs and advancements in medical technology.

• IT: Continuing its upward trajectory with a 17.13% CAGR.

On the other hand, Realty has been the biggest loser over 15 years, with a mere 4.7% CAGR. This sector's struggles can be attributed to regulatory challenges, oversupply, and cyclical demand.

Medium-Term Insights

Over the last 10 years, FMCG has surprisingly underperformed compared to the Nifty 500, with a 14.43% CAGR versus the Nifty 500's 15.48%. This highlights the sector's recent challenges, including changing consumer preferences and intense competition.

Sector-Specific Trends

• Nifty Energy: This sector has seen significant growth over the last year (63.35% return) and 5 years (25.74% CAGR), driven by rising energy demand and renewable energy initiatives.

• Nifty Healthcare: Despite underperforming over 10 years, this sector has shown remarkable resilience over 5 years (27.72% CAGR) and 15 years (15.77% CAGR).

• Nifty Private Bank: This sector has consistently delivered strong returns over 5 years (10.83% CAGR) and 10 years (13.58% CAGR), driven by growing financial inclusion and digital banking.

 

5-Year Observations (2019-2024)

• Top Performers: Nifty Realty (34.01% CAGR), Nifty Energy (25.74% CAGR), and Nifty Healthcare (27.72% CAGR) have been the top-performing sectors over the last 5 years.

• Consistency: Nifty Auto (30.6% CAGR) and Nifty IT (24.42% CAGR) have consistently delivered strong returns over the 5-year period.

• Underperformers: Nifty PSU Bank (25.13% CAGR) and Nifty Private Bank (10.83% CAGR) have underperformed compared to the Nifty 500 (22.28% CAGR).

• Sector Rotation: Nifty FMCG (18.06% CAGR) and Nifty Financial Services (14.28% CAGR) have seen a decline in performance compared to their 10-year and 15-year track records.

 

1-Year Observations (2023-2024)

• Top Gainers: Nifty Realty (91.44% return), Nifty Auto (68.22% return), and Nifty Energy (63.35% return) have been the top-performing sectors over the last year.

• Resilience: Nifty IT (34.69% return) and Nifty Healthcare (52.68% return) have demonstrated resilience despite global economic uncertainty.

• Laggards: Nifty Bank (19.89% return) and Nifty Financial Services (24.82% return) have underperformed compared to the Nifty 500 (41.54% return).

• Short-Term Trends: Nifty Pharma (51.97% return) and Nifty PSU Bank (29.41% return) have seen significant growth over the last year, driven by short-term factors.

 

 

 

Key Takeaways

• Diversification: Spread investments across sectors to minimize risk and maximize returns.

• Long-term focus: Sectors like FMCG, Financial Services, Auto, and IT have consistently outperformed over 20 years.

• Sector rotation: Winners and losers can change over time; adapt your investment strategy accordingly.

• Realty's struggles: This sector's underperformance over 15 years warrants caution.

• Thematic investing: Focus on emerging trends, such as renewable energy, digital transformation, and healthcare innovation.

Investment Strategies

• Active management: Regularly review and adjust your portfolio to capitalize on sectoral trends.

• Passive investing: Consider index funds or ETFs tracking sectoral indices for long-term growth.

• Sectoral allocation: Allocate investments across sectors based on risk tolerance and investment goals.

Conclusion

Analyzing sectoral performance provides valuable insights for investors to navigate the complexities of the market. By understanding the winners and losers across various time frames, investors can optimize their portfolios, manage risk, and capitalize on emerging trends.

Disclaimer: Past performance is not indicative of future results. This analysis is for informational purposes only and should not be considered investment advice.