Every week, brokerages and research desks put out sector calls. “Bullish on Chemicals.” “Overweight Healthcare.” “Avoid IT.” These come wrapped in macro arguments, demand forecasts and policy tailwinds. They sound authoritative. They read well in morning notes. And for the most part, they are analytically useless.

That’s a strong claim. But we have the data to back it up.

Dronacharya’s lesson and the investor’s eye

There is an old story from the Mahabharata that investors would do well to remember. Dronacharya, the great teacher of the Pandavas and Kauravas, once set up a wooden bird on a distant tree and asked his students to aim at its eye. Before releasing their arrows, he asked each one what they could see. Yudhishthira said he saw the tree, the branches, the bird. Duryodhana said much the same. One by one, the princes described the whole scene. Then Arjuna stepped forward. “I see only the eye of the bird,” he said. He was the only one allowed to shoot, and he struck the target perfectly.

The lesson has survived thousands of years for good reason. Seeing the whole tree is not the same as seeing the target. In investing, a sector call is the equivalent of describing the tree, the branch, the sky and the wind. It is a panoramic view when what you actually need is a focused one. Arjuna did not waste his attention on the scenery. He locked onto the one thing that mattered. The best investors do the same. They do not ask “which sector?” They ask “which company?”

The rest of this note explains, with hard numbers, why that distinction makes all the difference.

The problem with sectors

A sector call compresses an entire distribution of stock returns into a single directional view. Buy or sell. Overweight or underweight. It assumes that knowing the sector tells you something meaningful about the individual stocks within it.

We looked at 42 sectors and hundreds of listed Indian companies, measured their one-year returns, and asked a straightforward question: How wide is the gap between the best-performing quartile and the worst-performing quartile within the same sector? This gap, known as the Interquartile Range (IQR), is the clearest measure of how much a sector label actually explains.

The median IQR across all 42 sectors is 33 percentage points. In the typical Indian sector, the top quartile stock outperformed the bottom quartile by 33pp within the same sector, in the same year.

Think about that for a moment. A sector call collapses that entire 33 percentage point spread into a single arrow. Up or down. It tells you which direction the wind is blowing, but nothing about where you actually land within the distribution. It makes one wonder if it’s actually analysis or a coin toss dressed up in a research wrapper.

The data

Here is the return dispersion across ten major sectors. Pay close attention to the IQR column. It captures the distance between the 75th percentile and 25th percentile return within each sector.

Banks: The homogeneous sector argument falls apart

The usual defence of sector calls goes something like this: They make sense for homogeneous sectors. Banks all face the same regulator. They operate under the same interest rate cycle and the same credit environment. If any sector should move in lockstep, it ought to be Banks.

The numbers tell a different story. The IQR for Banks in this period was 54 percentage points. The top quartile returned +35 per cent. The bottom quartile returned −19 per cent. That is a 54-percentage point gap inside a sector where every company does fundamentally the same business, under the same regulatory framework, lending to overlapping customer segments.

If sector calls fail in the most-structurally homogeneous sector in Indian listed markets, the argument for them everywhere else simply disappears.

Chemicals: The heterogeneous sector problem

Now consider Chemicals. This label covers 117 stocks spanning specialty chemicals, basic chemicals, agrochemicals and intermediates. The total spread between the best and worst performer is a staggering 500 percentage points. One stock returned +443 per cent. Another returned −57 per cent. The median return was −19 per cent, which means more than half the sector actually lost money.

A “bullish Chemicals” call during this period was factually wrong for the majority of stocks in the sector. Is that a call gone wrong or a category error by itself?

Also, what really is ‘Chemical’ sector? Is the label even analytically useful? Seems like it is a filing cabinet label that groups together companies with entirely different raw material profiles, end markets, margin structures and competitive dynamics. Specialty chemicals and commodity chlor alkali have about as much in common as a hospital and a gym. Both happen to fall under “healthcare.”

The 52-week high/low test

Return dispersion tells you about the past year. The 52-week high/low distribution tells you about right now. For each sector, we flagged stocks within 10 per cent of their 52-week high and stocks within 10 per cent of their 52-week low, at the same point in time.

If stocks within a sector genuinely move together, you would not expect many to be sitting near their highs and lows simultaneously. What we found was the opposite:

Healthcare is the starkest example. Out of 127 stocks, 14 per cent were near their 52-week highs, while 46 per cent were near their 52-week lows, at the exact same time. Within the same sector, some companies were having their best year, while others were having their worst. A single directional call on Healthcare is simultaneously right and wrong, depending entirely on which stock you happened to pick.

The coverage paradox: more analysts, same dispersion

A reasonable objection at this point would be that sector calls are designed for the large-cap universe — the top 500 companies that brokerages actively cover with dedicated analysts and full financial models. Restrict the study to that universe, the argument goes, and the dispersion should compress.

The data does not support this.

Across the top 500 listed companies in India, the median IQR remains 24 percentage points. In Banks, 25 of the largest and most-covered lenders in the country produced a top quartile return of +33 per cent against a bottom quartile of −11 per cent, a spread of 43 percentage point. In Capital Goods, 35 large-cap names produced a 45-percentage point IQR with a negative median of −13 per cent. In IT, both quartiles were in the red, but the gap between losing 14 per cent and losing 39 per cent came down entirely to stock selection, not sector direction.

The most-researched stocks in Indian equities still render sector-level calls an insufficient investment framework. Analyst coverage does not compress dispersion. It just means more people are confidently wrong about the same call.

What should replace sector calls?

None of this means sector context is irrelevant. Understanding that a company operates in specialty chemicals versus commodity chemicals matters enormously. Knowing that a bank runs a retail-heavy book versus a corporate-heavy book matters. Regulatory tailwinds, capex cycles, commodity exposure: All of this is real and important.

The problem is aggregation. Sector calls take all of this nuance and compress it into a single arrow, throwing away most of the information in the process.

What works instead is starting from the individual business. What is this specific company’s return on capital? How durable is its competitive position? What is the management’s track record on capital allocation? These are questions that sector labels simply cannot answer.

The sector is context. The stock is the call.

Knowing the sector explains far less of a stock’s return than knowing the stock itself.

The median IQR of 33 percentage point across all sectors is the empirical proof. In a world where the typical sector produces a 33-percentage point spread between its top- and bottom-quartile performers, a sector-level call is not wrong the way a bad stock pick is wrong. It is wrong at the level of the question being asked.

Like Arjuna at Dronacharya’s test, the question was never about the tree. It was always about the eye. Not “which sector?” but “which company?”

Balaji Vaidyanath is the Head of NAFA Asset Managers and Abinash Swamenathan heads its research

Published on April 11, 2026