Modules for Investors
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Sectors of the stock market
How often do you visit your local market? Or perhaps, your neighborhood supermarket? If you’re like most people, perhaps you head out there every week, on average? Well, in that case, you’ll no doubt agree that any market is typically divided into multiple segments. One that sells vegetables, another that has a variety of fruits on display, and a third that offers a variety of local, handmade products.
Your neighborhood supermarket also likely has different aisles for different products, doesn’t it? Rows and rows for chocolates, biscuits, savories, skincare products, hair care solutions, soft toys, outdoor sports, and perhaps even a section for clothes.
Much like this, the economy - and therefore, the stock market - also has different parts. We call them sectors of the stock market. Let’s look at the technical definition of these sectors.
What are stock market sectors, exactly?
Fundamentally, a sector is an area of the economy that’s made of companies engaged in similar lines of business. This could involve the manufacture or sale of products or services. The stock market is also divided into sectors to reflect the way the economy is partitioned. Companies that belong to the same sector generally share a number of common operating characteristics.
What are the sectors in the Indian stock markets?
There are many different sectors in the Indian stock markets. The NSE and the BSE both have different sectors into which the shares listed can be classified. Let’s take a closer look at these sectors of the stock market. This will also act as a primer to what we’re going to be seeing in the upcoming chapters of this module. So, without further ado, let’s begin.
The banking sector in the Indian stock market includes companies that offer banking and financial services. Many of these companies are dedicated to holding financial assets for others, and they invest those financial assets as a leveraged way to create more wealth. India’s banking sector includes a wide network of various kinds of banks and banking solutions.
As per recent date, the Indian banking system consists of the following:
- 12 public sector banks
- 22 private sector banks
- 46 foreign banks
- 56 regional rural banks
- 1485 urban cooperative banks
- 96,000 rural cooperative banks
As of September 2020, the total number of ATMs in India stood at 210,049. This number is expected to rise up to 407,000 in 2021.
2. Finance and financial services
The finance or the financial sector includes everything related to investing, finance and handling money in the economy. Many banks that are part of the banking sector also come under the financial services sector. In addition to this, the sector also includes companies engaged in the provision of other financial services like credit card issuers, insurance companies, co-operatives, pension fund companies, mutual fund companies and other smaller financial entities.
The automobile or automotive sector, often abbreviated to the auto sector, includes a wide range of businesses and companies that design, develop, manufacture, market and sell motor vehicles. India’s auto sector has been on a steady spree of development for decades now. In 2019, the country became the fourth largest auto market in the world, getting ahead of Germany. The sector saw around 3.99 million units sold in the passenger and commercial vehicles categories.
4. Consumer durables
Consumer durables refer to the category of goods that are enduring in nature, and do not wear out quickly. For example, take your household appliances like refrigerators, washing machines or air conditioners. These goods generally tend to last for years, and they need not be replaced frequently, isn’t it? Such goods are called consumer durables, and they have an entire market sector name after them. This sector includes companies that are engaged in the manufacturer of such consumer durables.
In the Indian context, the consumer sector includes both urban and rural markets. From a global perspective, India is a key market for potential future growth in this sector. This growth is likely to be driven by increasing disposable income.
Fast Moving Consumer Goods (FMCG) are exactly what they sound like - they are products that are in high demand, and so, they sell quite quickly. These products generally have a low shelf life, like soft drinks and chocolates, and often, they may even be perishable in nature. India’s FMCG sector is one of the largest sectors of the stock market.
In fact, household and personal care products account for around half the FMCG sales in India. The sector is also rapidly growing, thanks to rising awareness, easier access and transforming lifestyles. Interestingly, while the urban segment remains the largest consumer group, the FMCG market has also been growing at a rapid pace in rural India in recent years.
The tech sector, often abbreviated to IT for Information Technology, is the segment of the market that includes companies engaged in the manufacture of software, hardware or semiconductor equipment. It also includes companies engaged in providing internet services and other technology-based services. Often, companies that offer Business Process Management (BPM) services are also clubbed under this sector.
India’s IT and BPM sector have been growing at a rapid pace. In FY2o, the revenue of the IT industry in India was estimated at US$ 44 billion. That’s not all. India’s IT sector’s core competencies have also attracted significant investment from abroad. Recent data shows that the computer software and hardware sector in India drew in a cumulative foreign direct investment (FDI) worth US$ 62.47 billion in the period from April 2000 to September 2020.
The pharmaceutical sector, abbreviated as the pharma sector, consists of companies that discover, develop , produce, and market pharmaceutical drugs. These drugs are used as medications that are administered to patients, and they include a variety of products like tablets, tonics and vaccines, among others.
The position of India’s pharma sector in the global pharmaceutical landscape is an envious one. We are among the largest providers of generic drugs globally. That’s not all. Check out some other interesting facts about our pharma sector here:
- The Indian pharmaceutical sector supplies over 50% of the global demand for vaccines
- We also meet 40% of the generic demand in the US and 25% of all medicine demands in the UK.
8. Oil and gas
This should be pretty straightforward. The oil and gas sector of the stock market consists of companies involved in the exploration, extraction, refining, transporting and marketing of petroleum products like oil and natural gas. In this space, India has been holding one of the top positions for nearly a decade now. Since 2011, the country has been the fourth-largest Liquefied Natural Gas (LNG) importer after Japan, South Korea, and China.
The healthcare sector in the stock market includes companies that provide medical services, manufacture medical equipment or drugs, provide medical insurance, and facilitate the provision of healthcare to patients. There is a slight overlap with the pharma sector here, as you may have noticed.
In the Indian landscape, the healthcare sector is predicted to increase three-fold, to Rs. 8.6 trillion (US$ 133.44 billion), by 2022. Medical tourism in the Indian healthcare sector is also growing at the rate of 18%, and the government’s spending as a percentage of Gross Domestic Product (GDP) has also been on the rise. The Government’s expenditure on the healthcare sector has grown to 1.6% of the GDP in FY20BE from 1.3% in FY16.
Other sectors in the Indian stock market
Aside from the key sectors mentioned above, we also have a number of other sectors that our markets have been developed to include. Let’s take a quick look at what they are.
- Consumer discretionary goods and services sector:
Includes companies that manufacture, sell or provide non-essential consumer goods and services
- Media sector:
Consists of companies engaged in the production, publication and distribution of media
- Metal sector:
With companies that are dedicated to the location and extraction of metal and mineral reserves
- Realty sector:
Includes companies that are in the business of real estate
- Basic materials sector
Consisting of companies involved in the discovery, development, and the processing of raw materials needed by other sectors
- Energy sector:
Consists of companies related to producing or supplying energy in various forms
- Industrials sector:
Includes companies that make finished products, which are then utilized in the construction, manufacturing and other industries
- Telecom sector:
Includes companies that are involved in the business of exchange of information over significant distances by electronic means like words, voice, audio, or video
- Utilities sector:
Consists of water, gas and electric companies
So, that gives you a clear picture of the many sectors in the Indian stock market. Now, did you know that there are indices built upon these sectors? Yes, there are, and that’s just what we’re going to be looking at in the upcoming chapter.
A quick recap
- Fundamentally, a sector is an area of the economy that’s made of companies engaged in similar lines of business.
- The stock market is also divided into sectors to reflect the way the economy is partitioned.
- Companies that belong to the same sector generally share a number of common operating characteristics.
- Some of the key sectors include banking, finance, IT, healthcare, pharma, consumer durables, and oil and gas.
- Other sectors include consumer discretionary goods and services sector, media, metal, realty, basic materials, energy, industrials and telecom.