{"id":706,"date":"2021-01-15T09:34:15","date_gmt":"2021-01-15T09:34:15","guid":{"rendered":"https:\/\/www.invest19.com\/blog\/?p=706"},"modified":"2021-04-06T05:42:54","modified_gmt":"2021-04-06T05:42:54","slug":"it-sector-could-take-over-the-tag-of-defensives-from-fmcg-stocks-are-you-for-real","status":"publish","type":"post","link":"https:\/\/www.invest19.com\/blog\/it-sector-could-take-over-the-tag-of-defensives-from-fmcg-stocks-are-you-for-real\/","title":{"rendered":"IT sector could take over the tag of defensives from FMCG stocks. Are you for real?"},"content":{"rendered":"
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Investing in a developing country like India where foreign\ninvestors hunt for those stocks which could deliver stellar returns is not a\nnew normal. The developing countries are equipped with those industries whose\ngrowth rate could not be restricted due to untapped potential which makes\ndeveloping countries a sweet spot to bank upon. Developing countries invest\nheavily on infrastructure, telecom, heavy industries, IT sector and financial\ninstitutions and institutional investors leave no opportunity of channelizing\nfunds into high growth stocks. Despite, the above-mentioned sectors have made a\nfortune for investors but investor\u2019s love for FMCGs is never seen faded. <\/p>\n\n\n\n

No matter what kind of investor you are, which salary class\nyou belong, which type of portfolio you want to build, inculcation of an FMCG\nstock into your portfolio is observed highly. Not only the rising markets are\nan opportunity where investors add an FMCG stock to make some quick bucks but\nFMCG stocks also act as defensives when markets flow through turbulent times.\nThe major element which has influenced investors to \u2018gung ho\u2019 over FMCG stocks\nis their quick cash conversion cycle which has made them cash-rich companies\nand high dividend-yield stocks. Major FMCG stocks enjoy debt-free status or low\ndebt-equity ratio which restricts their cost of equity due to low risk and\ninterest obligations. There are sufficient entry barriers for new entrants as\nold FMCG players have spent considerable funds on promotional activities for\nbrand recognition and development of product line.<\/p>\n\n\n\n

It is inevitable to avoid an FMCG stock while designing an\noptimal portfolio as they serve a defensive role when systematic risk get\ntrigger and standard deviation spike. The FMCG sector is always given higher\nvaluations despite lower growth rate, however, the rising competition from the\nunlisted space such as Baba Ramdev\u2019s Patanjali and rising trends of unorganized\nand regional products is fading the charm and IT sector is taking up the charge\nfrom here.<\/p>\n\n\n\n

Here are the reasons which support IT sector to act as a\ndefensive further:<\/p>\n\n\n\n

  1. Shorter\ndistribution channel:<\/strong> FMCG companies are required to go through long distribution\nchannels which keep on reducing their margins and delay their receivables.\nWhile, IT industry follows a very small distribution channel which contains not\nmore than three parties and quick conversion of receivables due to involvement\nof efficient payment gateways makes them highly cash-rich.<\/li>
  2. Higher\nGrowth Rate: <\/strong>According to NASSCOM, Indian IT industry is expected to grow\nat 12-14% in upcoming years and relationship of India with tech mammoth U.S. is\nexpected to deliver more revenues in technology pockets. The strong growth rate\nwill rich the valuations of the IT companies and investors will find IT\ncompanies a healthy bet in turbulent times too.<\/li>
  3. Adhesive\nin operations of every industry: <\/strong>No industry could operate without the\ninvolvement of technology companies in their direct and indirect operations.\nRight the procurement of inputs, accounts maintenance, data management, human\nresource development and distribution of products to direct customers,\ntechnology has been a major adhesive for companies.<\/li><\/ol>\n\n\n\n

    It is worth-mentioning that FMCG sector has acted as a hedge\nin a portfolio and attainment of optimal asset allocation to an ideal\nportfolio. The FMCG stocks seen better performed than precious metals and\ntreasury bonds which facilitate you to hide when equities tumble. FMCGs are\nstill high dividend paying stocks, debt-free, constantly growing and free from\nbusiness cycles however the outperforming features of IT industry such as\nhigher growth rate, adhesive requirement and shorter distribution cycle are\nmaking them new defensives for upcoming years.<\/p>\n

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    \n \n <\/i>\n <\/a>\n 5 <\/span>\n<\/div><\/div>\n\n","protected":false},"excerpt":{"rendered":"

    Investing in a developing country like India where foreign investors hunt for those stocks which could deliver stellar returns is not a new normal. The […] Read More<\/a><\/span><\/p>\n","protected":false},"author":1,"featured_media":707,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2,7],"tags":[],"class_list":["post-706","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stock-market","category-investment"],"_links":{"self":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts\/706","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/comments?post=706"}],"version-history":[{"count":1,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts\/706\/revisions"}],"predecessor-version":[{"id":708,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts\/706\/revisions\/708"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/media\/707"}],"wp:attachment":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/media?parent=706"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/categories?post=706"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/tags?post=706"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}