Defensive stocks add a layer of protection to your portfolio. Such stocks are typically low beta stocks and they do not fluctuate too much with the markets. That means when the markets are up, they may not gain so much but also when the markets go down, they do not show such steep corrections. As the name suggests, these defensive stocks are known to give steady returns even when the markets are going nowhere. The typical defensive stocks are less vulnerable to business cycles and while they may see some impact on demand and earnings, they are unlikely to be overly impacted by the vagaries of the economic cycles.

You don’t buy defensive stocks to outperform the market. You typically buy them so that in a downtrend the portfolio value can be better maintained. Defensive stocks are normally not outperformers in the market but your downside risk is also limited. Stocks like Colgate, Britannia and Hindustan Unilever are classic examples of defensive stocks as they are in an industry that is not too cyclical in nature. Sectors like pharma and IT were also classified as defensive stocks in the past but over the last couple of years they have been relatively more volatile due to their over dependence on the US markets. The key thing to note is that the concept of defensive stocks keeps changing from time. For example, even FMCG stocks have shown to be high beta stocks at select points of time.