Know How to Create an Evergreen Portfolio

16 January, 2024

What are evergreen stocks?

Evergreen stocks refer to the companies or stocks that are considered relatively safer than the broader markets. To put it simply, companies whose businesses are more stable and less turbulent basis the economy are considered evergreen.

You should know how to identify an evergreen company and what industries typically fall under this bucket. Investing in such companies can be a safer bet for your portfolio. Even when the markets go through a rough patch, these shares perform better than the indices.

Features of an evergreen company

Some characteristic features can help define a company as evergreen. Even though there are no of set criteria, there are some common aspects present across this bucket.

The following are some of the main features:

Need-driven demand

Evergreen companies usually have businesses in industries that are more need-driven than want-driven. During times of economic downturns, companies selling need-based products tend to survive. Irrespective of everything, there are a few things every individual needs to consume to ensure survival.

Investors invest in evergreen companies to reduce the risk of economic turbulence. Hence, these sectors must be less influenced by business or economic cycles.

Stable performance

Evergreen companies have usually performed relatively stable in terms of their earnings. It is critical to see if the revenue and profit generated by the company are stable or volatile. If the financial metrics are too volatile, the company cannot be classified as an evergreen stock.

Along with having stable results, the share price of such a company must have been steadily growing in the market. If the prices have had a lot of turbulence historically, fresh investments can also be volatile.

Diversified business

Just like you need to diversify your portfolio, in the same manner, a business should also be diversified. A company generating the majority of its business from one product or market is a risky bet.

Conglomerates or companies having an array of products and markets are typically safer. Even if things take an unfortunate turn with one product / market, they will have other items to support their overall business.

Market share

Companies considered evergreen are generally the market leaders in their business. Such companies are characterised by a good market share and a strong brand positioning.

Market leaders tend to have more brand loyalty and trust among the customers, potentially ensuring quick revival even after a recession. New businesses are a riskier bet as they do not have enough market penetration and the trust to survive during challenging times.

Dividends

Dividends are an adequate way to ensure a continued income stream for investors. Companies with a stable business and healthy market share typically pay regular dividends.

Shares with higher dividend yields are safer as dividends provide some cushioning against possible price loss.

Industries that are considered evergreen

Not all industries are alike. Some industries are relatively stable and safer than others. Over time, some industries have emerged to be typically evergreen or safer with respect to the broader markets.

• Food industry - Manufacturers and processors of staple food items like rice, oil, etc., are typically safer. Their business is need-driven, and their demand cannot be reduced beyond a point. Even during challenging times, an individual needs to consume such products, thus ensuring continuous sales for the industry.
  
  It is important to note that a company indulged in the fast-food business or cafes might not enjoy such benefits as their demand isn't necessarily need-driven. Hence, consumers can cut down on them during bad phases.
  
  

• Utilities - This is another sector that provides you with multiple essentials of life. The industry covers electricity, water, gas, waste management, etc. All of these goods and services are crucial for every individual. The industry enjoys a stable and predictable demand with a relatively stable business model.
  
  

• Healthcare - If you are unhealthy or sick, you need to undergo treatment despite the economic conditions. Healthcare is something you cannot avoid. Hence, it is considered an evergreen sector where the demand is perennial.
  
  The industry covers hospitals, drug manufacturers, distributors, pathological labs, healthcare equipment manufacturers, etc.
  
  

• FMCG - Fast Moving Consumer Goods (FMCG) refers to that section of consumer goods that are usually low-priced essentials with frequent sales. The industry covers products like soaps, shampoos, detergents, house cleaning products, etc. Almost all of these products are need-driven.
  
  FMCG companies typically have a large product portfolio across markets and sub-industries. This makes them relatively stable stocks to invest in. Moreover, the large-scale provider of such products is usually well-known among the masses.
  
  

• Technology - In recent times, almost all industries are making technological advancements. Providers of such technologies are needed across economic sectors.
  
  Given the current era, the need for technology cannot be denie. Hence, the industry has wide applications and demands. It quickly adapts to changing market conditions and can generate steady revenue.
  
  

Conclusion

The aforementioned factors determine what makes a company evergreen. The criteria and examples highlighted will help you understand which companies can be considered evergreen stocks in India. However, it is important to remember that even with evergreen stocks, investments are subject to market risks. You should always conduct thorough research before investing.

To keep your portfolio evergreen, it is also important to track it regularly. HDFC Bank's Demat Account allows you to do this anytime, anywhere. You can have the account activated instantly via an e-KYC process and begin your investment journey

Click here to open your Demat Account online!


​​​​​​​*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.