When it comes to long-term investments it is crucial that you are thorough with the company details you decide to put your money in. You should know about the company and the products they offer. Scrutinize the product demand and make sure you choose something which will not vanish in the next 10-15 years. You also need to understand the industry or sector to determine its growth potential. For instance, in the past, sectors like mining, utility, etc. seemed to have growth potential however it has changed with times. You can see these sectors barely making any difference in terms of growth and profits. Unlike these sectors, there are various sectors in the stock market which have great growth opportunities like technology, machine learning, renewable energy, electric vehicles, etc. Also, this will be true for the coming decades as well so investing in such sectors is wise. In this article, we will learn about a few sectors where you can make the best long-term investments. Before that, we will understand the importance of long-term investment plans.
There are various advantages to making long-term investment plans. Following are a few advantages of long-term investment in the share market.
When you reinvest your profits in more shares you almost double your money in a decade or less than a decade. With long-term investments, you can enjoy greater profits due to the power of compounding. Time is your greatest ally as an investor, and you can yield greater profits as time goes by.
You are not an active trader when you start investing in long term investment plans. However, this gives you the freedom of learning different trading styles. You will have your share of mistakes, but this is how will you learn. It doesn’t take a great investor to make long-term investment plans anyone can do it.
Along with great profit potential long-term investment offers great sleep at night. When you invest in good companies for the long term the stocks are relatively less volatile. Less volatile stock means lesser stress levels.
This is another advantage of the long-term investment plan that you pay lesser taxes as compared to an active trader. Any investment which lasts lesser than a year is considered a short-term investment and they have a top marginal tax rate. The tax rate for short terms is between 10% to 39% whereas for long-term investment it is 0%, 15%, or 20% depending on your income.
Let us learn how you can select the best sector to invest in the Indian stock market
Always remember to put your money in growing sectors. Do not compromise when it comes to the performance of the sector. When the market is at a growing pace look for sectors that are performing the best. Also, as you are investing for the long term you should scrutinize sectors in different time frames. This will help you understand if the sector is determined to flourish in the future as well or not. Depending on the time horizon of your investment plans you can pick time frames accordingly. You should have a clear understanding of the dynamics of the market and the sector you choose. Along with profitability, you need to consider other factors like sustainability and survival during the time horizon of your investment.
We have curated a list of few sectors with great growth potential and ideal for long-term investments.
Internet evolution has caused advanced developments in the IT sector. Especially in the years between 1990 to 2010 we have seen the internet explode exponentially. This triggered the rapid development in IT sector companies even more than manufacturing companies. Due to high growth potential, IT companies can be considered as a safe bet for the long-term. There various factors behind the growth potential of the IT sector. Some of the factors include government policies like Digital India, technological developments, economic needs, etc.
FMCG is another safe for long-term investment in India. To put simply soaps, shampoos are the FMCG product and we don’t see a production of these items ever stopping. The FMCG products will always stay in demand, unlike many sectors that follow the contraction and expansion cycle. The latter ones are called cyclic industries. These are the products which people have been using for over 100 years and will continue in the future. It is only logical to not buy an automobile during a recession or economic crisis but because FMCG products are the basic essentials- its demand won’t decrease as much compared to the other industries. Hence, FMCG companies have very good growth potential and safe industry to make long-term investment plans.
Pharma is another wise selection as India is one of the largest exporters of generic drugs. The current pandemic outbreak which brought the world to a standstill worked in the favor of pharma companies. For a long time, the Pharma industry was under a long-term bear market but recently entered a long-term potential bull market. Besides various Government programs and initiatives for rural health, preventive vaccines, and mass checkups will always work in favor of pharmaceutical companies.
Not to mention due to COVID-19 the market is going bullish on the pharma and healthcare sector due to the increase in demand for medicines and drugs. The ongoing health crisis made people aware of personal hygiene and safety. This will keep demand in the products related to healthcare. If this demand is there Pharma companies will continue to flourish.
India is a growing nation, and, in such nations, there is growth potential in the infrastructure sector. Various government initiatives in developing public places, building new airports, redevelopment of housing societies, metro projects, etc. are ongoing in our nation. In all these projects Infrastructure companies are the key players and hence become a safe sector and obvious choice for long-term investment in India.
As mentioned earlier India is a growing country hence the housing finance companies hold great growth opportunities. House finance companies are also a great choice for long term investments. This is because housing finance companies have cleaner balance sheets as compared to banks. Not to forget the NPA is about 13% for banks and only about 1% for housing finance companies. This indicates that the housing finance companies have better management.
According to reports by CNBC it is predicted that there will be 125 million electric vehicles on road by 2030. This futuristic technology makes the automobile sector the best choice for long term investment. To develop efficient electric vehicles, batteries should be powerful to cover longer distances without discharging. To make better EVs different companies are already working on improving the technology of existing models. Hence, the automobile sector has an amazing potential to reward its shareholders in the long-term.
To sum up you can diversify your portfolio by selecting the best sectors for long-term investment in India. Hence, allocate funds in such a way that you make the best long-term investments and invest in different sectors. This will also diminish the risk levels and you can make an investment in a sector that has the potential to boom in the future.
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