In October of 2021, the Securities and Exchange Board of India added 8 more stocks to the list of F&O stocks. Futures and options trading already accounts for a lot of trades that happen in the stock market and SEBI’s decision aims to further fuel this trend.
Just like investing in stocks, to trade futures and options also, you need to find where to invest according to your investment goals and risk appetite. The categorisation is something that could help with this. But how are futures and options stocks categorised and how will it help in F&O trading? Let’s explore.
F&O stocks are categorised based on the Global Industry Classification Standard (GICS) developed by MICS and S&P Dow Jones indices. This classification tool is aimed at analysing the sectors in which the companies fall. They explore the possibilities and potential of each sector helping the investors with their investment decisions. GICS classification method is now globally accepted and used by stockbrokers, investors, AMCs, etc. all over the world to measure and decide on their investments. This classification can be used on F&O stocks as well, making investment decision making easier.
According to the GICS classification, stocks are divided into 11 sectors.
These are mostly companies that do oil and natural gas business. This could include companies involved in production, supply, or distribution of different forms of energy.
These companies are involved in the production or distribution of basic materials. This sector caters to a wide variety of subsectors, including the construction industry.
This sector includes a large number of businesses that are related to or use heavy machinery. Aero planes, and railways are mostly included in this sector as they handle heavy equipment.
As the name suggests, the companies that fall under this category supply utilities to cater to consumer demand from both commercial and resident customers.
This sector, which is in the limelight now due to the current COVID-19 pandemic situation, includes companies that produce, market, or distribute medicines or healthcare equipment.
This sector includes finance-related companies such as banks, payment platforms, credit card companies, and even non-banking financial corporations.
Consumer Discretionary Sector
Companies that sell luxury or high-priced products are included in this category. This includes industries like automobiles and tourism.
This category includes companies that manufacture or sell consumer products such as food, beverages, personal care products, etc. Supermarkets that sell these consumer products are also included in this category.
Companies that manufacture, supply, or sell hardware or software related to information technology are included in this category.
Telecommunication companies, media, entertainment banners, etc. are placed in this category of stocks.
Companies that manage and handle real estate find their place in this category.
How does GICS categorization Help?
This categorization helps in finding sectors that have the most potential and investing accordingly. It also helps you find stocks that are in match with your investment horizon. For instance, if you are looking for an aggressive growth option, you could choose a stock from a sector that has similar characteristics.
This categorization can be of great help in finding the right place to invest. Use the pointers above and make the most out of your stock market investments. You could also reach out to a financial expert to help you plan your investments by taking into consideration your investor profile.
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