Resilient Sectors: Market Insights: Selecting Quality Stocks in Resilient Sectors

Uncertainties, surprises and shocks have largely dominated both the stock market and the business environment over the past two years. Business standards are changing rapidly and disruption has become the new normal. While competition has also been a threat to most companies, this time around the different aspect is that competition is not only intra-industry but also cross-industry.

With the recent announcement of the cement giant’s entry into the paints segment, a major transportation logistics project aimed at capturing the cement market, it seems that not only the small players but also the market leaders are well established are also challenged. Therefore, with many investors investing in market leaders, they are increasingly nervous about whether or not to stay invested in these companies.

To answer this question, it is first important to recognize that there is one common trait in all market leaders and that is the possession of economic moats that can help them maintain their leadership and expand it. also. Warren Buffett has repeatedly argued that the most important factor in choosing a successful investment is judging the sustainability of a company’s competitive advantage or what is commonly referred to as the “moat”.

This is important because companies with sustainable long-term economic moats are better able to weather the storm and also more likely to reward shareholders generously.

So essentially, at this point, it becomes imperative to judge whether or not the market leaders that one holds from a long-term perspective have economic moats that are sustainable or shrinking day by day. Second, history also suggests that while there are classic cases of successful disruptions, many large companies have also failed to break into new segments. So right now, as we see disruption in spaces that are supposed to have high barriers to entry, market leaders will need to continually innovate and strengthen their moats to stay relevant. The focus will now shift from “expanding market share” to “protecting market share”.

On the other hand, with so many fish in the pond, it looks like the smaller players will have to drive the wave of consolidation or they could be the first to go.

Essentially, it all comes down to Charles Darwin’s classic quote “survival of the fittest”. Regardless of the environment, the formula for a winning business does not change. It is at times like these that the corporate “moat” is truly tested. So while it will take a long time to find out who wins the race, investors should carefully monitor how market leaders are faring in times of disruption as this will allow them to gauge their investment decisions. .

Technical outlook

The Nifty 50 index closed on a positive note for the week, confirming that a minor short-term bottom is in place now. In line with global benchmarks, Nifty is also heading for an immediate break of resistance indicating that the short-term trend is bullish. That said, there is no concrete evidence that the correction phase is over. Given this, we suggest traders maintain a slightly bullish outlook going forward and follow a stock-specific buy-on-dip approach. The next immediate resistance level for Nifty is now placed at 17,400.


Expectations of the week

The next action-packed week is filled with a host of map events. For starters, all eyes will be on RBI’s MPC meeting as market participants try to decode what’s in store for the economy. Given the central bank’s rate hike spree to quell India’s searing inflation, Street is eyeing a 35-50 basis point repo rate hike this time around. In addition, inflation statistics for China and the United States are due next week, which could trigger concerns in the global market. Investors are advised to select quality stocks in resilient sectors and to invest in a laddered manner. Nifty 50 closed the week at 16,584.30, up 1.42%.

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