Financial investors classify stocks based on sectors to find out how a particular sector is doing in a particular economic condition. Defensive sector is one of those sectors. In this article we will be discussing what defensive sector is and how this sector is used by investors in decision making.
Defensive sectors are those sectors which are consistently showing stable and predictable earning irrespective of economic instability.
Investing into these funds is advised by many investors to be in safer side at the time of instability in stock market or in volatile economic conditions. Another main reason of investing into defensive sector stocks is that it will protect you in case of significant declines in share prices that are associated to the risk of market corrections.
During a bad economic conditions general consumers use to avoid costly items, entertainment, travel or any other luxury and only buy necessary things like food, health care and other basic requirements. Because of this reason, investors start investing in defensive sectors in market corrections and volatile market.
Examples of Defensive sectors
There are many sectors which can be classified as defensive sector. Below we have given three examples of defensive sector classification;
Food Items or commodity Sector
Food items like biscuit, milk, cereal, cigarettes, tea, corn, crude oil, rice and alcohol are necessity even in bad economy or when economy is down. Price of food items remains stable irrespective of market conditions by which profitability also remain stable. Companies like ITC and HLL will be into this category.
Health Care and Hospital
Health care and hospital is another sector which is also considered as a defensive sector. Companies into these sectors offer products or facilities which consumer will buy even in difficult economic conditions.
Even you can take insurance, medical instrument makers and drug companies into defensive sector.
Utility sector is considered as defensive because general consumers use it in their day to day life and they cannot live without that. Things like gas, telephone, electricity will fall into this category.
Many investors will start investing in defensive sectors when they foresee a recession or bad economic condition.