The Three Sectors To Avoid When Investing in India's Stock Markets 2

Attractive sectors

Indian markets have been outperforming with the IMF having pegged their growth at 6.8% for 2017, highest among major economies of the world. To understand which sectors in India have performed best and the worst, we studied the portfolios of three of the largest India focused ETFs:

  • iShares MSCI India ETF (INDA)
  • iShares India 50 ETF (INDY)
  • Power Shares India Portfolio (PIN)

The top three performing sectors across these ETFs are

  • Retail
  • Diversified financial services
  • Transportation

The three worst performing sectors across these ETFs are

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  • Coal
  • Software
  • Computers

The diversified financial services sector constitutes 13.5% of the INDA ETF, 8.3% of the PIN ETF and 8.1% of the INDY ETF. Year to date, diversified financial services stocks have returned an average of 35.6% in the INDA portfolio, 38% in the INDY portfolio and 37.5% in the PIN ETF portfolio. Stocks that have generated the highest returns in the diversified financial services space are Bajaj Finance, India Bulls Housing Finance, HDFC, and Power Finance Corporation (PFC). These stocks have returned 51%, 54.8%, 21.2% and 29.9% respectively in 2017 so far.

Banks make up 8.7% of the INDA ETF, 23% of the INDY ETF and 9.1% of the PIN ETF portfolio. Year to date, banking stocks in the INDA portfolio have returned 12.5% on an average while those in the INDY and PIN ETF portfolios have returned 20% and 16.2% respectively. Banks that have generated the highest returns during the year so far are Yes Bank, Indus Ind Bank, and Kotak Mahindra Bank. These stocks have surged 34.4%, 29.4% and 24.5% YTD.

The building materials space consists primarily of cement stocks. These stocks have gained since the Modi government has come into power due to a stronger focus on infrastructure development. During the year so far, building materials stocks in the INDY ETF have gained 26% on an average while those in the PIN ETF and INDA ETF have gained 26.3% and 23.5%. Stocks like Ultratech cement; Ambuja Cement, ACC Ltd (ACC), and Grasim have gained 27.4%, 19.6%, 20.7% and 36% respectively.

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