Want to invest in recession-proof stocks? 3 best sectors

Sectors that witness inelastic demand for products do well even during a recession. This includes sectors like Healthcare, FMCG, and Agrochemicals, where even if products become pricey, there will always be demand.

First, what is elastic and inelastic demand? 

If the price of a glass Coke bottle comes down from Rs 30 to Rs 10, the general demand for it will increase. Similarly, the vice versa holds true too. This is called elastic demand, that is, price determines the demand for products.

So what is inelastic demand? When demand for a product stays constant irrespective of what price the seller sells it at, this is known as inelastic demand. For eg: When you want to get treated at a hospital, you will get treated irrespective of the price they charge you. Earlier there was no GST on hospital beds, but even though there's a hefty amount to be paid, you will still get treated. 

So similar to Hospitals, the Agrochemical industry, and the FMCG industry both have inelastic demand, which makes them recession-proof industries that can thrive 365 days of the year. Here's why:           

1. Agrochemicals: 

As of 2019, India was one of the world's top four manufacturers of agrochemicals. This sector includes products like insecticides, pesticides, fungicides, etc and during a recession, the government is razor focused on this sector. This is because it is the government's responsibility to ensure that there is enough food for the country's folks. Agrochemicals also help in creating a consistent supply of essential food grains like rice, wheat, barley, etc, and so this sector is the least affected by a recession. 

Therefore products in this sector can be said to have inelastic demand. Listed agrochemical companies like United Phosphorus Limited (UPL), India Pesticides Ltd, PI Industries can be good stocks to consider investing in. 

2. Healthcare 

When it comes to healthcare, you cannot defer going to a doctor in case you are down with a disease or need immediate treatment. Therefore, irrespective of what prices are charged, they have to be borne by customers. This means that healthcare will always be in demand and hence less prone to recession effects. Just look at stocks like Krishna Institute of Medical Sciences or Narayana Hrudayala Ltd. 

3. FMCG 

India's FMCG industry, which includes household and personal care items, grew by 16% in FY 21 because of consumption-led growth, value expansion from higher-value products, government initiatives, and reverse migration. Today, it's the fourth largest industry in India.  This sector includes items that you use every day, like toothpaste, detergents, skincare, etc. Since you won't stop buying essential products, this again happens to be a recession-proof industry. 

Consider investing in companies like Britannia, Procter and Gamble, Marico, Dmart, etc if you want to invest in this sector.  

Some say that alcohol is a recession-proof industry too (since there were long queues outside liquor stores even during a lockdown). What do you think? Would you consider spirit stocks to be recession-proof stocks?