Where to invest money in 2020 (beaten down sectors)?

Articles > Submitted by PatientInvestor on 4/9/2020 | Views: 265

I am trying to figure out beaten down sectors to invest in 2020, remember that this kind of sectors are for patient investor to reap benefits in long run (5+ years).

Table of Contents

    There are always low hanging fruits to invest in share market if your time horizon is long. When I say long means 4 to 5+ years. In this post, will try to discuss those sectors and few stocks too that may help reaping good profit in long run if invested now.

    Financial sector

    This corona has spread world wide and most of the institutions are closed, be it banks, industries, IT companies or normal government offices. If you are tracking some leading stocks of financial sector you will notice that they have crashed 30%-40% from their recent highs.

    Though in short term, it looks messy as people are being given Moratorium that will impact banks and NBFCs badly in short term as they will not get their cash back from their clients. However, it is not going to be the same in another 6 months or so.

    All financials institution will be back in action as soon as we are past lockdown and/or we have some measure to control Covid-19 virus. If India has to grow and become 5 trillion economy as our respected Prime Minister says, the financial institution has to play very very big role as it connects from rich to poor, from small businesses to large organizations.

    If you compare the price of leading financial companies, you will notice panic selling.

    Company name 52W high Current price
    Bajaj Finance 4923 2548
    CreditAccess Gramin 1000 344
    HDFC Bank 1305 927
    HDFC Ltd 2499 1697
    Axis Bank 827 418
    Kotak Bank 1740 1275

    Disclaimer: Price as on 9-April-2020 at the time of writing this article. These are just an example to demonstrate price fall and not a recommendations to buy.

    Above are some of the leading financial organizations of India and considered very good companies with solid managements. If you notice the rate of price fall in above companies, you will be surprised. Fundamentally, nothing has changed in above companies. Neither they have any scandals, nor business is going to impact badly in next couple of years, nor their business is going to close down. The major thing that has brought their price is the panic selling and affect of world closing down due to COVID-19 lockdown.

    If you see the history of previous falls, you will notice that good companies that fall during crash/fall gain their market share once thing starts stablizing; may be 2 to 4 quarter (6 to 12+ months) down the line. Above companies will certainly get back their 52W high price and more when things will stablizes however if we wait for things to stablize, we will not get these companies share at the current price.

    If you have sound financial health to support next couple of quarters, perhaps this is the time to start investing in these companies slowly.

    Do not put all money at a time or even do not invest in a single company. Do not expect double or tripple from here on in 1 or 2 years.

    Auto Sector

    Auto sector is not in good shape for last few years (2018 onwards). There were many reasons, disruption due to Bharat IV to VI stage, shift from oil based engine to electric engines, decrease in demand etc. All these lead auto sector companies shares prices to correct in a big way.

    Below are some of reliable and proven companies, their approximage high price and current price.

    Company Name High Current Price
    Balkrishna Industries 1423 874
    Escorts 1000 690
    Hero MotoCorp 3950 1970
    Mahindra & Mahindra 961 381
    Maruti 9500 5315
    Minda Industries 429 262

    Disclaimer: Price as on 9-April-2020 at the time of writing this article. These are just an example to demonstrate price fall and not a recommendations to buy.

    Fundamentally, nothing much have changed except the sector rotation and temporary demand. All these companies are considered leader in their own specifications. They all are capable of acquiring new capabilites and design their product baseed on that.

    I am sure all above companies and other good companies of this sectors will gain back their glory again after few years but the price at which they are available now, we will not get. So if you have time horizon of 4-5 years, this is the sector to invest slowly and acquire good companies share at throw away price.

    Other sectors companies share available at reasonably better price are

    1. Metal
    2. Infra
    3. PSU (Public Service Undertakings) companies. They generally have very good dividen yields.

    Should I Invest lumbsum or SIP mode?

    Once you have finalized the sector in which you want to invest, you can try to find leaders of that sector. (To find the leader in that sector, try to see their market cap, generally leadership companies have higher market cap, their products are known in public eg. Maruti.). 

    In general, new investors or investors who doesn't have good grasp on finanscials of the companies should target leadership companies as they are proven and probably too big to fall. Chances of loosing money in these companies in long term are very low.

    Try buying their shares in small quantities. If you have to buy 100 shares, buy 20 shares at a time. This will help you averaging the price well. Normally, we feel in hurry buying shares and want to buy all quantity at a time fearing the price may go up and we will loose (this is called FOMO effect, Fear of Missing Out). However, we should stay away from these kinds of mentality. As these companys are not favourite to market currently and the current time is also not favourable for market, so chances are you may get these companies shares at better price if you spread your buying in 2 to 6 months. Even if you get at higher price later, its okay as your investment is for long term and few hundread higher price doesn't make much difference in long run.

    If you are not comfortable identifying companies, doesn't have average knowledge in market and can't track the companies at least a once in a quarter, prefer Mutual Funds.

    There are sector spefiic funds available like Auto sector fund, Financial sector funds etc. Generally, its not recommended to buy sector specific funds as your money is stuck only to that particular sector. If that sector perform well, you are good otherwise your money is stuck for long time. However these are special situations and we can allocate few percentage of our investment to sector specific funds.

    Hope this post was useful. Do share your comments. Happy investing.

    Website disclaimer: The views, opinions, investment advices (if any) expressed by author on Sharefunda.com are their own and not that of the website or its management. Users are advised to contact certified financial advisor before making investment decisions.

    Submitted by PatientInvestor on Thursday, April 9, 2020

    Patience doesn't cost anything but pays a lot in stock market!


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