InvestorQ : Should we shift to defensive stocks in a volatile market?
Bhavika Nehru made post

Should we shift to defensive stocks in a volatile market?

Answer
user profile image
Niraja Mehta answered.
2 years ago


Defensive investing is surely one strategy to handle volatility. But you need to remember that what may be defensive today may not be defensive tomorrow. For example, FMCG may have been defensive in the past but today it is an aggressive sector. Similarly, IT and pharma have become a lot more volatile in the recent past. You need to factor all these into your calculations.
When markets become volatile, what are the sectors that are most likely to get affected? Typically, in any event of macroeconomic volatility, it is the banks and financials that get immediately impacted. If it is a valuation related volatility then try to stay out of the sectors and stocks that have triggered this volatility in the first place. IT in the peak of 1999, Realty in 2007 and PSU banks in 2011 are all cases in point. Capital goods stocks are vulnerable when the capital investment cycle is turning negative. In times of heightened volatility, try to stick to the sectors that have strong brands and high ROE. These stocks are likely to weather the storm much better. Typically, FMCG companies and pharma companies tend to fall into this category.