Whenever the market hits an all-time high, fear and the existing optimism grow. Is this the top the market can hit this year? Are we currently in a bubble? Is the Indian economy at risk of recession? What are some recession-proof stocks in India? These are questions that every investor always thinks about before starting the investment process.
While it is impossible to predict with certainty what is happening in the markets or the economy, investors can still focus on what they can control.
In this blog, we will look at exactly this aspect of the question “How to create a portfolio that can withstand a recession?” . Read on to learn more about recession-proof stocks likely to weather a recession in India in 2023.
What is a Recession?
Before understanding what sectors and stocks we should invest in, let’s first understand “what do we mean by recession?”. When a country experiences two-quarters of negative growth, that country will fall into a recession. But with that comes a new set of problems.
When growth slows, it stops creating new jobs for people and leads to the loss of existing jobs. This, in turn, leads to a new set of concerns. As panic spreads, people become more and more cautious about their spending habits. Not only people are investing less, but they are also withdrawing their current investments and savings to weather the storm.
On top of that, the recession brings other challenges, like inflation, that make the concern more difficult to deal with.
Which Sectors in India Can Withstand the Recession?
After reading some horrors in the previous paragraph, one might argue that staying away from the market is best. But that thinking does more harm than good when the stock market drops. The reduction in spending in the economy does not end all spending activity.
People have to keep living, which also comes at a cost! Determine where these expenses are going and where they can’t be stopped. It requires having a closer look at the areas where people just can’t stop spending, thinking a little smarter, and adapting to the changes brought about by the recession.
Before entering the list, knowing that no industry is immune to a recession is important! You may experience a slight drop in your investment, but you still expect to survive the downturn on better terms! Therefore, you should always include stocks from the following recession-proof stocks that are likely to withstand the Indian recession in 2023 in your portfolio when a recession occurs or even better than before!
5 Recession-Proof Stocks in India
These sectors have strong fundamentals, diversified revenue streams, and a track record of stability that makes them attractive options for investors looking to safeguard their portfolios.
1. FMCG Sector
No matter what period the economy is going through, people cannot live without certain things. Even if people stop spending on expensive restaurants, they will still buy the essential groceries they need. People still must care for themselves and buy toothpaste, soap, shampoo, dishwashing liquid, etc.
Another interesting aspect seen in COVID-19 times is the exploding amount of knitwear! Indeed, with containment measures, everyone is stuck at home. No matter how miserable the lockdown is, everyone does their best to feel comfortable wearing sunglasses at home. This, in turn, leads to improved prospects for these companies.
Since these products are always in demand regardless of the economic environment, they are called consumer staples. The industry is often the first choice when investing in recession-proof stocks.
2. Pharma Sector
Like consumer staples, the pharmaceutical industry is another sector that hasn’t suffered a drop in demand during a recession. Regardless of the economic situation, people with chronic illnesses must continue to receive health care.
Even on other fronts, a depressed economy will only worsen people’s health, depending on the cause of the disaster. Unfortunately, this increases the demand for products marketed by pharmaceutical companies.
3. Oil and Gas Stocks
After paying attention to the other industries on this list, seeing this one should be no surprise. Electricity and gas products also belong to the group of essential products and are not affected as much as other industries. These utilities, like electricity and fuel, are important because they cannot be compromised today. Here are some of the biggest players in the electricity and gas industry.
On top of that, herd investors are also panicking and selling their investments as stock prices fall into a sell-off. On top of that, the recession brings other challenges, like inflation, that make the problem more difficult to deal with.
4. Beverage/ Alcohol Industries
There are high-profit margins in producing alcoholic beverages such as wine, beer, rum, whiskey, and other alcoholic products.
Demand for these products is more or less unaffected by economic cycles of recession or expansion. Since demand for these products can be stable during a downturn, their sales and profits may not suffer a great deal. So, if you’re an investor in such a company, you can take comfort in these recession-proof stocks.
Notable wine-producing stocks in India are United Breweries, United Spirits, Som Distilleries, Assoc Alcohol, Globus Spirits and Radico Khaitan. However, the spirits market in India also faces strong competition from French spirits companies.
5. Discount retailers and groceries
Have you ever been to a Walmart store and waited in line to pay at the weekend? That’s the power of retail and discount groceries.
Moreover, during a recession, people’s incomes decrease, making them prefer discounted products more than before. Even everyday or essential consumables have to be purchased somewhere. These products are usually purchased from discount retailers and grocery stores.
As a result, the sales and revenues of these companies are relatively less affected by the economic downturn. In addition, they are recession-proof stocks that allow the sale of other recession-proof products.
Notable stocks in this category include Dmart (Avenue Supermarket), Spencer’s Retail Limited, and more. These companies typically operate supermarkets that sell consumer goods and luxury goods.
These recession-proof stocks mentioned above are considered recession-proof based on their previous inventory performance during economic downturns. There is no fact or guarantee that the returns of these stocks can only be positive during recessions.
Also, not all securities in these categories will likely experience similar downturns. For different stocks, the trend may be different.