Retail investors are often in the lookout for the stocks and sectors that are likely to perform well in the immediate future. When most small and mid-caps are believed to be overpriced, and broader market index of Nifty 50, too, is trading at a premium — there are a few sectors and stocks that are still a ‘good’ buy.
Notably, one techie Jishnu Mohan on Feb 7 posted on X platform that the whole recession situation made him “at the lowest confidence level in his career”.
Sadly, he lost his job at Forma just a day later. Some social media observers viewed his sacking an upshot of his X post. But he clarified that the two were totally unrelated and he was let go as part of the reorganisation and he was not the only one in his team who faced this fate.
In January 2024, several big tech companies and startups laid off over 30,000 employees with layoffs likely to get more intense this year,Hindustan Timesreported.
Here we give a lowdown on the IT sector and explore if it carries the potential to deliver healthy returns in the immediate to medium term future.
Nifty IT index
Nifty IT index has given a return of 23 percent in the past one year but it is seen as overheated with a P/E ratio of 31.32 and P/B of 7.96.
Experts point out that IT sector is set to underperform and is not a good buy at the current valuations.
| Nifty IT Index |
| Constituents | 10 |
| P/E | 31.32 |
| P/B | 7.96 |
| 1-year return | 23.19 % |
| Std deviation | 18.48 |
(Source: NSE as on Feb 23, 2024)
What experts say about the IT sector?
Most investment advisors argue that the information technology (IT) sector is not a good ‘buy’ since the projected growth is muted in Calendar Year 2024.
“Exports have declined and the next one year is not too great for the IT sector. There are not good industry prospects. I expect the sector to underperform. The growth of export services is projected to grow by 2-3 percent in dollar terms,” says Chokkalingham G, Founder ofEquinomics Research.
However, he believes that the IT behemoths may still perform well while the smaller peers are currently overheated. “The large IT companies may grow because the small and mid-caps are overpriced,” he adds.
On the other hand, Vishal Dhawan, founder of Plan Ahead Wealth Advisors, argues that IT companies may give good returns moving forward.
“We believe that whilst the recession fears that had caused a severe correction in IT stocks have receded and the outlook for IT companies going forward is likely to be better as interest rates across the world stabilise,” he says.
Additionally, most experts advise against raising the allocation to one particular sector be it in IT or something else.
“Notwithstanding the fact that IT has not done too well in the recent past, we don’t recommend investors to become too niche in a sector or theme because it requires one to take a tactical call. In a diversified portfolio, one can have 10 percent allocation to sectoral funds to get the benefit of specific sectors. However, good quality IT companies can still deliver good returns,” says Sridharan Sundaram, Founder ofWealth Ladder Direct.
Amol Joshi, founder ofPlan Rupee Investment Services also echoes the same sentiments.
“We don't recommend investing in thematic funds. Most lay investors don’t possess knowledge to ensure both the price points (at which they are bought as well as sold) are correct. You need to get the timing accurate. One can’t foresee all the factors relating to geography, technological, foreign currency fluctuation and global over the entire market cycle,” he says.
First Published:
26 Feb 2024, 10:09 AM IST
FAQs
What experts say about the IT sector? Most investment advisors argue that the information technology (IT) sector is not a good 'buy' since the projected growth is muted in Calendar Year 2024. “Exports have declined and the next one year is not too great for the IT sector. There are not good industry prospects.
Is it good to invest in sectoral funds? ›
Sectoral and thematic equity funds tend to be significantly more risky than the diversified equity funds. Investors should focus on building their core mutual funds portfolio using well diversified equity funds across categories such as flexi cap, large cap, value, large and midcap, etc.
What sector is best to invest in right now? ›
List of the Top Sectors in India that are Most Likely to Provide Excellent Returns
- Healthcare and Insurance Sector. ...
- Renewable Energy Sector. ...
- IT Sector. ...
- Real Estate Sector. ...
- Fast-Moving Consumer-Goods Sector (FMCG) ...
- Automobile Sector.
Long-term and equity mutual funds are ideal products to create wealth if you follow two mantras for investment: the best time to invest is now, and the best way to invest is regularly—in other words, every month.
Is sector investing a good idea? ›
Sector investing can help investors enhance diversification or invest opportunistically. By investing in multiple sectors across the equity market, investors can help protect against the risk of any one sector lagging in the broader stock market.
What are the disadvantages of sectoral funds? ›
High Risk Due to Lack of Diversification: The primary risk is the lack of diversification across the broader market. If the chosen sector underperforms, the fund's performance will suffer significantly, leading to higher volatility compared to diversified mutual funds.
Why invest in a sector fund? ›
Sector investing offers targeted exposure to the stocks of companies in specific segments of the economy and can help you pursue growth, diversify your portfolio, and manage risks.
What sector will boom in 2024? ›
Proptech is expected to have a Compound Annual Growth Rate (CAGR) of 16.5% between 2022-2032. Since Proptech is relatively new and heavily relies on new technological advances, we can expect it to become one of the fastest-growing industries in 2024 and in the upcoming years.
What sectors outperform in a recession? ›
Historically, the industries considered to be the most defensive and better placed to fare reasonably during recessions are utilities, health care, and consumer staples.
Which sectors are booming right now? ›
Fastest Growing Industries in the US by Revenue Growth (%) in 2024
- Major Smart Appliance Manufacturing in the US. ...
- Fruit & Nut Farming in the US. ...
- Solar Power in the US. ...
- Kombucha Production in the US. ...
- Online Gambling Services in the US. ...
- Hybrid & Electric Vehicle Manufacturing in the US.
Mutual funds are long-term investments, and it's important for you to remain calm during a crash. You need to stay invested and take advantage of rupee cost averaging. Markets have rewarded those who have not pulled out of their investments.
When should you not invest in mutual funds? ›
However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end and back-end load charges, lack of control over investment decisions, and diluted returns.
What is the best mutual fund to invest in in 2024? ›
Best-performing U.S. equity mutual funds
| Ticker | Name | 5-Year Return (%) |
|---|
| FDGRX | Fidelity Growth Company Fund | 23.11 |
| SCIOX | Columbia Seligman Tech & Info Adv | 22.54 |
| FSBDX | Fidelity Series Blue Chip Growth | 22.33 |
| FBGRX | Fidelity Blue Chip Growth | 21.51 |
3 more rowsSep 2, 2024
The healthcare and insurance sectors have seen substantial changes due to this. This is why healthcare stocks are the best stocks to invest in. Due to a rise in the number of people who need insurance, the proportion of premiums reached 4.2% in 2021.
Are sector funds high risk? ›
Investors willing to take High Risk:
As mentioned above, these funds invest in a specific sector and this lack of diversification means these are some of the riskiest mutual funds available. So only those investors who are comfortable with taking high risks should consider investing in them.
Should you invest in financial sector? ›
Investing in the Financial Sector
Economists often tie the overall health of the economy with the health of the financial sector. If financial companies are weak, this is a detriment to the average consumer.
Are sector funds safe? ›
What risks can I expect with sector funds? Vanguard classifies sector funds as aggressive, which means they can be subject to extremely wide fluctuations in share prices.
What percentage should you invest in each sector? ›
Investors can employ the five percent rule with sector funds. To diversify within specialty sectors, such as biotech, commercial real estate, or gold miners, investors keep their allocation to 5% or less for each.
What are the bad sectors to invest in? ›
Sector trading is a form of active trading that typically involves a higher level of risk than investing in the broader stock market. The worst sectors to invest in, based on median returns, are information technology, energy, utilities, and materials.
