The stock market is always unpredictable and volatile. Investors are always on the lookout for stocks which will provide regular returns even during the worst market conditions. However, are there any such stocks that perform during market downturns? Yes, defensive Stocks are the answer.
In this article, we will delve into these stocks, their functions, types and the best defensive stocks in India.
What are Defensive Stocks?
Defensive stocks are like a savior for your portfolio because they provide you with consistent returns in the form of dividends regardless of how the market performs. Typically, these stocks are associated with companies in industries like utilities, healthcare, personal care, consumer staples, etc.
The demand for these products is evergreen. For example, people will buy medicine even in a recession. This is what makes them a top contender among investors.
These stocks add a layer of security to protect your portfolio against volatility during market turbulence. Whether the market is bullish or bearish, its value does not fall or rise drastically.
Types of Industries & Sectors in Defensive Stocks
As you know, they cater to the basic necessities and are always in constant demand. So, here are the industries and sectors:
1. Healthcare Stocks:
People need healthcare regardless of economic conditions, making this sector defensive. So, the companies involved in medical services, pharmaceutical and medical equipment manufacturers are regarded as defensive. However, growing competition in these sectors can be challenging.
2. Utilities:
Companies in the utility sector are those that provide all the essential services for daily needs like water, gas, and electricity. Because these services are essential for daily living, demand is always stable, making all the utility stocks defensive. Even during a recession, consumer spending on utilities is less likely to fall, hence the value of stocks in this industry remains relatively constant.
3. Consumer Staples:
These businesses manufacture or sell all of the necessities like food, drink, and other home essentials. Because everyone requires these things on a daily basis, demand for them is always consistent, regardless of the condition of the market.
Function of Defensive Stocks
The main function of these stocks in India is that they are a blessing for your portfolio during market turbulence. They are known for their stability and protection.
However, in a bullish market, you could miss up the opportunity to make larger gains. So, you can blend defensive and growth-oriented stocks in your portfolio to achieve portfolio balance.
Pros & Cons of Defensive Stocks
Here are the pros and cons of these stocks in India.
Pros:
1. Stability
Defensive stocks provide stability, making them a good investment for conservative investors. While other industries may see huge price variations, defensive stocks are more resistant to such swings.
2. Dividend Payout
Many stocks have a history of paying out regular dividends. So, this option can be suitable for your regular income.
3. Lower Volatility
Volatility can fear many investors, so in that case, these stocks are the best option. Because they are less volatile than other sectors.
Cons:
1. Limited Growth
The downside of these stocks is they get slow growth as compared to other stocks. So, the prices of such stocks may take time to increase.
2. Underperformance During Economic Expansion
Choosing the best time to invest in defensive stocks can be difficult. If you enter the market during a period of economic growth, you may miss out on possible returns given by more growth-oriented stocks.
3. Interest Rate Sensitivity
Some defensive stocks might be susceptible to changes in interest rates. When interest rates rise, the appeal of dividend-paying stocks could decline, hurting their market performance.
Top 10 Best Defensive Stocks in India
Here are the best stocks list in India that have performed very well.
- Hindustan Unilever
- Avenue Supermarts
- Dabur Ltd.
- TCS Ltd.
- Infosys Ltd.
- Wipro
- Sun Pharma
- Cipla Ltd.
- Nestle India
- ITC Ltd.
How to Invest in Defensive Stocks?
Here are the steps to invest:
- Conduct thorough research on all the potential defensive stocks in India and select the one with a good financial record, dividend history and track record of stability.
- Look for financial ratios like P/B, P/E, dividend yield, etc. to understand the stock movements and their performance.
- Look for the stock’s beta to measure the volatility. These stocks have a lower beta, usually less than 1 because they are less affected by market movements.
- Post conducting your analysis, evaluate it with your personal financial goals and risk appetite.
Conclusion
Defensive stocks are a great investment for a well-balanced portfolio providing long-term stability, consistency and protection from economic downturns. You can explore different investment opportunities and invest in these stocks India using the Dhan App.
Frequently-Asked Questions (FAQs)
What is a defensive stock example?
Some of the examples of leading defensive stocks in India are TCS, Hindustan Unilever, Dabur, Sun Pharma and Avenue Supermarts.
What sectors are defensive?
The healthcare sector, utilities, consumer goods and telecommunication are the primary defensive sectors because they are in constant demand irrespective of what the market condition is.
Is TCS a defensive stock?
Yes, TCS is because it has a stable demand and business model.
📌 You can also read:
- Best Fintech Stocks in India
- Best Sugar Stocks in India
- Best Alcohol Stocks in India
- Best Green Hydrogen Stocks in India 2023
Happy Trading 📈
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.
