A sector is a part of an economy broader than an industry. There could be many industries in a sector. For example, the banking and financial services industries are part of the finance sector. Similarly, the pharmaceuticals and medical devices industries are part of the health care sector.
A stock market refers to a combination of stocks of companies that offer similar products or services in different sectors. The stock market helps investors understand companies engaged in various industries and sectors, e.g., FMCG, Banking, Metals, etc.
The world’s major stock markets are divided into different market sectors; company stocks that compete directly in the same industry or sector are listed together in an index. E.g., companies in FMCG, and IT in a broad-based index, like in Nifty 50 and SENSEX. Similarly, companies of the same sector in a sectoral index, like Bank Nifty, have different banking companies in a banking index.
At the outset, knowing a broad classification of different sectors in an economy is essential. As per economists, a national economy could be classified into four sectors:
- Primary Sector: this sector includes agriculture, mining, and forestry. This sector has units engaged in the activities such as extraction of raw materials and natural harvesting products from the earth.
- Secondary sector: it includes manufacturing, construction, and processing industries.
- Tertiary Sector: it comprises units involved in services, retail sales, financial services, and entertainment.
- Quaternary sector: this part of the economy is based on knowledge applicable to some business activity that typically involves providing services. It may include data collection, distribution and technology, research and development, vocational education, and business consulting.
Major Sectors in Stock Market
In the stock market, significant sectors comprising different types of companies are:-
Information technology: IT Sector includes internet companies and technology products. Computers, electronic equipment, data processing, communication equipment, IT services, processors, and operating systems.
Health services: The health sector includes medical supply companies, pharmaceutical companies, medical devices, etc.
Financial: The financial sector includes banks, credit card issuers, insurance companies, and real estate investment trusts (REIT).
Communication Services: The communication services sector includes Internet providers and telephone, media, entertainment, and interactive media services and services.
Industrial: The industrial Sector includes insurance companies, airlines, railways, manufacturers of military weapons, aerospace and security, and construction and engineering.
Consumer Discretionary: The consumer discretion sector includes luxury cars, jewelry, clothing, sports products, electronic devices, household products, luxury tours, hotels, and restaurants.
Consumer Staples: The consumer staples sector includes food, beverages, and tobacco, household and personal product suppliers, and supermarkets.
Energy: The energy sector includes oil, gas, coal, and fuel companies that find, drill, and produce.
Utilities: The Utility sector includes electricity, water, and gas for buildings and households.
Real Estate: The real estate sector includes investment trustees (REITs), apartments, malls, offices, and living communities, as well as realtors and other companies.
Materials: The materials sector mainly includes chemicals, precious metals, mining, building materials, packaging, metals, and paper companies
Conclusion: Role of Stock Market Sectors in Investing
The different stock market sectors have several benefits, including helping individuals build well-diversified investment portfolios and understand the behavior of the market. An investor may choose to invest in a few companies, either separately or through managed funds like Mutual Funds and ETFs. In addition, they may invest in multiple sectors to take advantage of an overall economy.
Understanding sectors makes investing and tracking portfolios convenient without investing in individual companies, even without the need for professional fund management services.