When the stock market reaches an all-time high, dread rises alongside the present optimism. Is this the market’s highest point for the year? Is it possible that we are currently trapped in a bubble? Is India’s economy on the verge of a downturn? These are some of the questions that every investor has on their mind. Although no one can forecast what will happen in the market or the economy with confidence, investors may concentrate on what they can manage.
We look at just this issue of ‘How can one design a portfolio that can withstand a recession?’ in this post. Continue reading to learn more about India’s Recession-Proof Stocks in 2022.
How do you define a Recession?
Before we get into what sectors and sorts of companies we should buy-in, let’s define what a recession is. When a country experiences two consecutive quarters of negative growth, it is said to be in recession. However, this brings with it a whole new set of issues.
When growth slows, it not only ceases providing new jobs for its population, but it also causes existing jobs to disappear. This, in turn, creates an entirely new set of issues. Citizens become more careful when it comes to their spending habits as panic spreads. Citizens not only make fewer investments, but they also withdraw their existing investments and savings to weather the storm.
Furthermore, as share values fall during a mass sell-off, investors who follow the herd panic and sell off their investments. In addition, a recession carries with it additional issues such as inflation, making the problems much more difficult to deal with.
Stocks that are Recession-Proof in India by 2022 :-
After reading some of the horrors described in the preceding paragraph, one could conclude that it is best to avoid the markets altogether. However, given the current state of the stock markets, this concept causes far more harm than benefit. A reduction in economic spending does not imply a complete cessation of all spending.
People must continue to live their lives, which comes at a cost! Identifying the source of this uncontrollable expenditure. This will necessitate a closer examination of where people are unable to stop spending, as well as some strategic thinking and adaptation to the recession’s adjustments.
Before we get started, it’s crucial to remember that no industry is recession-proof! Even if one’s investment drops little, one is still projected to come out of the recession on better terms! When a recession occurs, or even better, before, it’s always a good idea to include stocks from the following industries and their Recession-Proof Stocks in India 2022 in your portfolio.
1. The Fast Moving Consumer Goods Industry
People cannot live without certain commodities, regardless of what stage of the economy they are in. Even if people quit eating at pricey restaurants, they will continue to purchase the food necessities. People must still take care of themselves and purchase items such as toothpaste, soap, shampoo detergent, and dish soap.
Another intriguing aspect of covid was that hosiery stocks were thriving! This was due to the fact that everyone was trapped in their homes due to the lockdowns. As inconvenient as the lockdowns were, everyone did their best to stay warm and comfy at home in their underwear. As a result, these businesses’ prospects have improved.
These products are referred to as consumer staples because they are always in demand, regardless of the economic climate. When it comes to investing during a recession, this industry is usually the first pick.
2. The Discount Retailers Industry
This is where being strategic comes into play. Consumer essentials must be acquired someplace. This, in and of itself, gives the location selling these products an investment opportunity during a downturn. If we look at the covid-19 catastrophe, we can see that millionaire RK Damani was one of the few people on the planet who not only protected but actually increased his wealth during the crisis.
This was due to his company, DMart, which operates one of the world’s largest retail chains. The company’s business model is unique. DMart only sells products with a short shelf life. As a result, consumer staples account for a significant amount of their product portfolio.
However, investors should use caution when investing in this market. This is due to the fact that not every retailer is a discounter. The majority of them diversify their product portfolio to cover as many things as possible, as well as luxury items. Both of these things are detrimental during a recession.
3. The Pharmaceutical Industry
The pharmaceutical industry, like consumer staples, does not experience a decline in demand during a recession. Individuals with chronic diseases must continue to receive healthcare regardless of the economy. Even on other fronts, a failing economy can only exacerbate people’s health problems, depending on the nature of the disaster. Unfortunately, this raises the demand for pharmaceutical businesses’ products.
4. The Power and Gas Industry
After seeing the other industries on this list, it’s not surprising to see this one. Power and gas goods are another set of basics whose demand is less influenced than that of other industries. These utilities, such as power and gasoline, are critical in today’s world and must not be compromised. The companies listed below are some of the most well-known in the power and gas industry.
5. Other Industries
There is a slew of other industries that have major advantages over others during a downturn. This is where an investor’s ability to adapt is put to the test. In recent years, technology has come to play an increasingly essential role in times of economic downturn.
Zoom was one of the best instances following the Covid catastrophe. Many businesses were able to continue operating during the lockdowns thanks to this technology. This resulted in a multi-fold increase in the company’s stock price. Today, a large number of businesses operate entirely online. During covid, these proved to be multi-baggers because their job was unaffected.
Furthermore, alcohol companies are another industry where investors might seek refuge. Companies that offer high-end alcohol have been seen to suffer during recessions. This is because, even if customers cut back on their consumption, they switch to cheaper brands during a recession. This was not the situation in India during Covid, where the industry was severely harmed by draconian lockdowns.
In conclusion :-
What we’ve seen thus far are sectors where one can seek refuge but still benefit. This isn’t to say that the other sectors of the market aren’t worth investing in. In fact, during a recession, investors will most likely be able to spot hidden treasures with ease. If one views recessions as opportunities, they are simply a means of weeding out the weak enterprises in various industries.
If you still want to invest in other industries, look at the top companies in the field. A detailed examination of the financials, such as debt, will reveal how well the company will weather the recession. An industry leader with a low debt load will outperform competitors with a high debt load.
This also gives them a cushion to finance operations with loans in times of difficulty. When the recession is over, these businesses will have more room to grow because their competitors will be in a worse financial position.
A recession also presents other chances, as many good companies with low P/E ratios are accessible. Opportunities might also be found outside of the stock market. These include ties and GOLD, which is one among the gods’ gifts to the planet. This concludes this article. In the comments section below, tell us about your investment approach and what you think of this post. Good luck with your investments!
YOU MAY LIKE :-