Sector frameworks
In this chapter: Banks and NBFCs — the loan-book lens · IT services, pharma, FMCG, capital goods — sector-specific drivers
Each sector has its own valuation logic and key drivers. Generic frameworks (PE × growth) miss sector-specific signals. Banks live and die by loan quality. IT services by client-mining and rate hikes. Pharma by R&D pipeline and US generics exposure. FMCG by volume growth and pricing. Capital goods by order-book and execution.
Banks: Net Interest Margin (NIM), CASA ratio, asset quality (gross/net NPA, slippage rate), provision coverage, capital adequacy (CET1, Tier 1). Valuation: P/B is primary; ROE and credit cycle position matter. NBFCs: same plus asset-liability mismatch (ALM). IT services: revenue growth, EBIT margin, attrition, deal TCV (total contract value), USD-INR sensitivity. Pharma: domestic vs export mix, US generics pricing pressure, R&D as % of sales, ANDA pipeline. FMCG: volume vs price growth, gross margin, advertising-to-sales, distribution reach. Capital goods: order book/sales ratio, execution cycle, working capital intensity, exposure to government capex cycles.
A practitioner insight: sector rotations matter more than stock picks within sectors. Banks lead at the start of upcycles, IT outperforms in INR-weakness phases, FMCG dominates in defensive markets. A top-down view (which sectors to overweight, which to underweight) often delivers more alpha than detailed stock selection within sectors. The exam-relevant nuance: sectors most retail investors avoid (capital goods, infrastructure) often have the highest cyclical alpha; sectors most love (FMCG, IT) have the lowest. Counter-positioning sometimes pays.