5 Recession Proof Sectors

October 10, 2009 by admin | 10 Comments

The global financial crisis which started last year, following the famous sub-prime crisis in the United States, has adversely affected most businesses, industries and institutions across the world, leading to massive job losses and decrease in payroll across industries. However in midst of this mayhem there have been a few sectors which have not only been able to survive the scare of recession but even leverage it to its advantage.

We have compiled a list of 5 sectors which have been successful in beating the recession blues. Here goes the list (In no particular order)

2^ND HAND RETAILERS

Though the retail sector has been severely affected the world over during this financial crisis with many big retail chains/outlets, shopping malls, multiplexes opting for closure after finding it difficult to feed their lavish expensive resources (large pool of highly skilled/groomed/professional staff, huge inventories, capital intensive infrastructure and an upmarket property), smaller 2^nd hand retail players (books, clothes, DVDs) have not only managed to stay afloat some of them have in fact managed a higher growth rate than previous years.

“In August the National Association of Resale & Thrift Shops (NARTS), which claims to be the world’s largest resale trade association, said a survey of its membership about second quarter sales in 2009 compared to the same period in 2008 showed increasing turnover in the second-hand sector.” (Source: Reuters)

With job losses and accompanied reduction in purchasing power of consumers the concepts of “bargain” and “recycling” is fast catching up aiding the 2^nd hand retail sector to bloom and prosper.

Check out “Success Stories” of second hand retailers in the US. Click here

TELECOM

Telecom has been yet another sector which has managed to grow at a healthy rate during the past year thanks to emerging and fast growing economies like India and China.

In particular India has seen a mini revolution of sorts in the telecom landscape during the last couple of years with subscriber base growing exponentially. Purely in terms of growth rate Telecom has outperformed most other segments of the industry if not all. Check this chart.

In spite of the size of the Indian telecom market the overall rate of mobile penetration is still far lower than most developed world economies and therein lies the opportunity for this sector to keep growing.

HEALTHCARE

Healthcare or Pharmaceuticals is another sector which is recession proof because people can’t really get away from their share of medical expenditure on drugs, hospitalisation and general health and disease management activities even in times of recession.

Hospital chains like Apollo, TMH, HCG and pharmaceutical companies like Dabur, Zandu, Biocon, Glaxo, Phizer, Ranbaxy have not only being doing well in terms of turnover or revenue but have actually been investing in clinical research to develop new drugs/vaccines/treatments for modern day diseases.

(HCG has brought a new breakthrough cyberknife technology for cancer treatment in India; Biocon is trying to develop oral insulin tablets for diabetics)

HIGHER EDUCATION

In times of lower available job opportunities people seek for higher and professional education to improve their resume and enhance their job prospects.

Around 8 lakh students appeared for AIEEE (CBSE Engineering) exams in 2008 and the number is expected to rise to 10 lakh this year. In fact enrolment in all professional higher education courses like engineering and management have been growing at a phenomenal rate for quite some time now, the current recession being no exception.

FMCG

Fast Moving Consumer Goods (FMCG) sector which caters mainly to perishable consumer products (like soaps, shampoos, detergents, biscuits, confectionary, chips, toffee, battery, torches, tea, ice cream, cosmetics etc) doesn’t get too affected with recession.

Although demand in cosmetics and other lifestyle products may decrease a little but no real impact comes in the overall demand of food items (like biscuits and confectionaries); batteries and torches; tea, coffee and other beverages; toiletries (soap, shampoo, detergents) etc, which comprises essential commodities of day to day use.

It’s the diverse product portfolio which keeps these FMCG companies going even in a slowdown.

Is recession really that bad ?

Capitalism -vs- Nationalism; what should MTN and Bharti do?

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Alhad

Very good write up underlining the " value investing" philosophy of Warren Buffet. But one thing I would like to add is industry is hit by two ways .. one is change in demand and the other is changes in input cost.. Sandip has come out with sector list primarily based on the influence of recession on demand, but if you look at costs and consequently the margins the picture could look slightly twisted. e.g. Everybody is aware of great Indian telecom story but the margins are increasingly under pressure making all the companies cas negative except may be Bharti Similar could be the case with FMCG.. thr revenues are largely unaffected but bottomline has taken a hit because of increased cost and high inlfationary pressures.
Alhad

Very good write up underlining the " value investing" philosophy of Warren Buffet. But one thing I would like to add is industry is hit by two ways .. one is change in demand and the other is changes in input cost..
Sandip has come out with sector list primarily based on the influence of recession on demand, but if you look at costs and consequently the margins the picture could look slightly twisted.
e.g. Everybody is aware of great Indian telecom story but the margins are increasingly under pressure making all the companies cas negative except may be Bharti
Similar could be the case with FMCG.. thr revenues are largely unaffected but bottomline has taken a hit because of increased cost and high inlfationary pressures.

Sandip

Good observation Alhad.

The Indian Telecom sector has recently been downgraded by experts on accounts of decreasing operating margins of telecom companies as a result of the ongoing tariff war. In last couple of weeks shares of most of the major telecom giants like RCom, Bharti have fallen by 15-20% and in general the sector has underperformed the SENSEX which has been on a little bull run recently with expectations of economic recovery.

Having said that Indian telecom landscape still remains an exciting place to be in. Standard Chartered expects mobile subscriber base in India will reach the 500 million mark by this year end or max by Jan next year. Further they expect mobile subscriber base to reach the 1billion mark by 2015 i.e. ~ 5 years from now. To elaborate a little it will have taken India 12 years time (1997-2009) to reach 1/2 billion mark and just 5 more years (2010-2015) to add another 1/2 billion. Now you know why everyone is vying for space inspite of such fierce competition. Communication has been one of the major economic growth drivers in the last 20-25 years. Don't write it off as soon

Moreover the reason I have mentioned 'Telecom' as a recession proof sector is that recession is not something which has made a negative impact on this sector its the existing hyper-competition amongst the telecom operators.

As far as FMCG companies are concerned, no doubt they have taken their share of hit in bottomlines however the effect has been minimal when compared to other big sectors like Realty, IT, Financial Services, Retail Chains, Automobiles, Steel etc. The point I am trying to make is FMCGs are inherently more robust and dynamic to absorb the effects of recession hence qualifies as a recession proof sector.

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Sandip

Good observation Alhad. The Indian Telecom sector has recently been downgraded by experts on accounts of decreasing operating margins of telecom companies as a result of the ongoing tariff war. In last couple of weeks shares of most of the major telecom giants like RCom, Bharti have fallen by 15-20% and in general the sector has underperformed the SENSEX which has been on a little bull run recently with expectations of economic recovery. Having said that Indian telecom landscape still remains an exciting place to be in. Standard Chartered expects mobile subscriber base in India will reach the 500 million mark by this year end or max by Jan next year. Further they expect mobile subscriber base to reach the 1billion mark by 2015 i.e. ~ 5 years from now. To elaborate a little it will have taken India 12 years time (1997-2009) to reach 1/2 billion mark and just 5 more years (2010-2015) to add another 1/2 billion. Now you know why everyone is vying for space inspite of such fierce competition. Communication has been one of the major economic growth drivers in the last 20-25 years. Don't write it off as soon Moreover the reason I have mentioned 'Telecom' as a recession proof sector is that recession is not something which has made a negative impact on this sector its the existing hyper-competition amongst the telecom operators. As far as FMCG companies are concerned, no doubt they have taken their share of hit in bottomlines however the effect has been minimal when compared to other big sectors like Realty, IT, Financial Services, Retail Chains, Automobiles, Steel etc. The point I am trying to make is FMCGs are inherently more robust and dynamic to absorb the effects of recession hence qualifies as a recession proof sector.
http://twitter.com/viksontweet Vikash

On a lighter note, i guess, even the institutes guiding students for HIGHER education entrances wont go out of business either..:P
Vikash

On a lighter note, i guess, even the institutes guiding students for HIGHER education entrances wont go out of business either..:P
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