Does Investment in Defensive Stocks Act as a Buffer during Market Downturns?
Mehul Agarwal
MBA (Core Finance) Student, Faculty of Management Studies (CMS Business School), Jain Deemed to be University, Bengaluru
Dr. Geeti Sharma
Associate Professor, Faculty of Management Studies (CMS Business School), Jain Deemed to be University, Bengaluru
Abstract:
The study examines the performance of defensive stocks during market downturns in the Indian stock market. The research focuses on the period from January 2000 to December 2023. In this study selected stocks from the Fast-Moving Consumer Goods (FMCG) sector (HUL, ITC, Britannia Industries) and Pharma sector (Sun Pharmaceuticals Industries, Dr Reddy Laboratories and Cipla) have been taken into consideration.
Five key metrics are covered to assess the stock’s performance: Stock return, Correlation, Beta Compound Annual Growth Rate (CAGR), and Dividend yield. For stock return a comparison is made between stock market return and selected stock return, also the average return of each stock is calculated and compared with the average market return during market downturns. Correlation has been used to understand if there is a relationship between stock returns and nifty returns. Beta has been used to understand the sensitivity of the stock in relation to the market and Compound Annual Growth Rate has been used to analyze the long-term stability of each stock. The average dividend yield is calculated to understand the extra return that an investor can get on his investments on top of capital gain.
The study findings revealed that incorporating stocks from the Fast-Moving Consumer Goods (FMCG) and Pharmaceutical (Pharma) sectors protects investors against market downturns, Additionally, the research highlights the long-term stability of returns associated with defensive stocks, making them a valuable component for investors seeking portfolio diversification and a buffer against market fluctuations.
Keywords: Defensive Stocks, Market Downturns, Stock Market Return, Beta, CAGR, FMCG, Pharma.
