What are Defensive Stocks in India?

A Defensive Stock is the one that ensures constant returns as the dividends, despite the fluctuations in the entire stock Market. Because of the products' constant requirements, defensive shares maintain stability during different phases of the business cycles.

Characteristic of Defensive Stock

A primary characteristic of defensive stock is that any movement in the stock market does not affect it. Therefore, this acts as a boon and a bane for the economic structure. Furthermore, during the Recession, it is a blessing to have defensive stocks in your Portfolio. Even in the market's downturn, a list of defensive stocks offers stable returns. However, the feature becomes a pain for investors during Economic Growth because they lose the chances of gaining higher returns.

This feature associates the defensive stocks to their lower Beta, which is lesser than 1. Given an example, if the stock's beta is 0.5 and the market falls by 10%, there will be a fall of 5% in the defensive stock. Also, in the same way, if the market rises by 20%, the defensive stocks will be expected to rise by 10%.

Investors are most likely to spend in the best defensive stocks during the fall in the market as this comes out as a cushion against Volatility. Still, the active investors switch to higher stock beta to maximize the returns during an expected rise in the market.

Benefits of Defensive Stocks

• A significant advantage of defensive stocks is that they offer long-term gains with lower risks than the other stocks
• As a group, defensive stocks have a higher Sharpe Ratio than the stock market entirely
• It is not essential to take many risks to beat the market. It is more effective to limit the losses with defensive stocks

Drawbacks of Defensive Stocks

• The defensive stocks' lower volatility might result in lower gains during the bull markets and the cycle of mistiming the market
• Several investors abandon the defensive stocks due to rising frustration with underperformance in the bull market when they require them the most
• After a market downturn, sometimes investors rush into defensive stocks even when it is late. These are the failed attempts during different market timings and might lower the return rates for the investors

List of Defensive Stocks in India

Below-mentioned are some of the top defensive stocks companies -

Note: These stock prices are as per 13-May-2021

Conclusion

Overall, defensive stocks are the ones that have a consistent performance despite the market changes. It is an excellent beginning to look for stocks in the defensive sectors. Still, being attentive to an individual stock's relevant features is necessary to suggest its accurate defensive performance. Defensive stocks are also helpful in preserving the wealth and protecting you against the recession and its losses. But they do not offer super-powered growth.