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Understanding core sector stocks

August 31, 2009 13:39 IST
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Understanding the stock market is something akin to finding the Holy Grail! Not everybody can understand the nuances of how the market works and subsequently, selecting and investing in the right kind of stocks.

Making money from the stock market was never easy. Although markets are in the upswing we find more and more people exiting citing losses in stocks. A close analysis shows a lack of understanding of the financial markets as the main reason for this.

Stock price movement is just more than a simple graph. Fundamental analysis helps you identify potential winners, which can be multi-baggers. Technical analysis helps you time the markets. If you are a long-term investor, fundamentals play a more important tool.

If you are a short-term trader, technical analysis, news, rumours play a more important role. Therefore, knowing your fundamentals is very important. We can always look at a stock's past performance to get a fair idea of its future performance. However, as with everything in the stock market, you cannot really have a sure shot winner.

One such stock that we can look at investing is core sector stocks. These stocks are not necessarily different from the general kind of stocks, but are just sector-specific.

Here sector means, the core industrials sectors - power, engineering, construction, capital goods, telecom, etc. These stocks are good investment options because they are closely connected to the development of a country. As a country develops, so does the value of these stocks.

Core sector stocks were receiving a lot of flak due to their performance last year as well as in the first quarter of this year. Also, you might say that with the stock market showing dismal performance this year, what difference would it make for someone to invest in these kinds of stocks?

Well, most experts say that a large number of companies are depending on local factors for their earnings, and thus these stocks partially insulated from global state of affairs, could serve as excellent investment opportunities. For that matter, the six core infrastructure sectors recorded a growth of 6.5 per cent in June compared to 2.8 per cent in May, according to data released by the government.

In June 2008, the six core sectors - coal, cement, crude oil, electricity, finished steel and petroleum refinery products - grew at 5.1 per cent. Coal production registered a growth rate of 13.2 per cent during the month as compared to 10.4 per cent in the corresponding period last year.

Similarly, electricity generation increased by 6 per cent in April against 1.4 per cent in the same month last year. Electricity generation grew by 2.7 per cent in 2008-09 compared to 6.3 per cent in the previous fiscal.

Investing in these stocks is exactly like investing in any other stock. You have to be on your toes while making decisions or you would become one of those who stop investing because they had to bear huge losses.

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