Article’s

Investment decisions in the stock market require a careful balance between risk and return, making portfolio diversification an essential strategy for investors. In the Indian context, sector-based diversification has become increasingly relevant as different industries respond differently to economic conditions and market trends. This study evaluates the effectiveness of sectoral diversification by analysing five major sectors Information Technology (IT), FMCG, Banking, Automobiles, and Pharmaceuticals against the NIFTY 100 index over a period of 20 years (2005–2024). The study incorporates both sectoral indices and individual stock analysis to provide a comprehensive understanding of market performance. Financial metrics such as CAGR, Beta, Sharpe Ratio, and Value at Risk (VaR) are used to assess growth, volatility, and risk-adjusted returns. Statistical techniques including correlation analysis, forecasting are applied to examine sectoral relationships and predict trends. The findings indicate that FMCG and Pharmaceutical sectors offer stability with lower risk, while Banking and Automobile sectors exhibit higher volatility and growth potential. The IT sector provides a balanced risk-return profile. At the stock level, HDFC Bank, TCS, and Sun Pharma consistently outperform both sectoral indices and the broader market. The study concludes that combining sectoral diversification with effective stock selection improves portfolio performance and supports long-term wealth creation. Keywords: Portfolio Diversification, Sectoral Analysis, Risk-Return, NIFTY 100, Indian Stock Market