Lesson 02 — Sector Diversification
Week 11 · Lesson 2 of 3 · Week 11 — Building a Watchlist
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No single sector outperforms forever. A balanced watchlist covers different sectors so you're always researching opportunities. "Saare ande ek basket mein ma...
Why diversify?
No single sector outperforms forever. A balanced watchlist covers different sectors so you're always researching opportunities.
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"Saare ande ek basket mein mat rakho."
Key Indian sectors
| Sector | Characteristics |
|---|---|
| IT | Export-driven, USD revenue, high margins, capital-light |
| Banking | Interest income, NPA risk, high leverage (normal) |
| FMCG | Defensive, high brand value, stable but slow growth |
| Pharma | R&D intensive, export + domestic, regulatory risk |
| Auto | Cyclical, capex-heavy, rural + urban demand |
| Infra/Capital Goods | Government order-dependent, long project cycles |
| Chemicals | China+1 beneficiary, export growth, cyclical element |
| Real Estate | Highly cyclical, balance sheet intensive |
A balanced beginner watchlist
Aim for 8-12 companies across at least 4-5 sectors. Example:
- 2-3 from IT
- 2 from Banking/NBFC
- 1-2 from FMCG
- 1-2 from Pharma
- 1-2 from other (Auto, Chemicals, Capital Goods)
Cyclical vs Defensive
| Type | Examples | When they do well |
|---|---|---|
| Cyclical | Auto, Metals, Real Estate | When economy is booming |
| Defensive | FMCG, Pharma, IT | When economy slows (people still need these) |
Key takeaway
A diversified watchlist protects against sector-specific risks. Research across sectors, don't concentrate.