Monopoly Stocks- Meaning, Features and List of Monopoly Stocks

Meaning of Monopoly Stocks

Monopoly stocks refer to stocks of companies that operate in a market with no or very little competition, giving them the ability to dictate product prices and control the market. Such companies enjoy significant market power, influencing the sectoral regulations as a result. Their domination discourages prospective entrants due to either high entry barriers or high costs because of having limited operational size.

Monopoly stocks can be in the government as well as in the private sector, often belonging to natural resources companies or those engaged in defense and strategically important sectors. In some cases, they are also present in very low-margin businesses as most companies do not want to operate in such businesses. Existing players thrive on economies of scale. Sometimes, particularly in science-based sectors like pharmaceuticals, there can be monopoly players in certain drugs or medicines because of holding the patent.

Occasionally, because of government regulations also, monopolies can thrive. On occasions, the nature of the sector doesn’t support the existence of more than one or two players. A monopoly does not necessarily imply a violation of government rules.  

How is a Stock Declared a Monopoly Stock?

A stock is declared a monopoly stock when it enjoys the power to determine the product price. It can be the sole seller of the product, such that it decides the price the product will sell for in the market. 

Features of Monopoly Stocks in India

Monopoly stocks in India are found in sectors like minerals (Coal India), defense (Hindustan Aeronautics and Bharat Earth Movers) and railways (Indian Railways Catering and Tourism Corporation). In India, monopoly stocks exist because either some sectors were earlier totally in the hands of the public sector and private players have come in only recently or the high cost of entry/operations discourages new players from entering the sector.

In India, a company like IRCTC has a monopoly over railway ticket bookings but at the same time, because of its public sector nature and its presence in a sector that’s for the larger public good, it doesn’t have unlimited pricing power. Coal India too dominates production of the solid fuel in India and does enjoy pricing power, but for the same reasons as IRCTC, doesn’t have unlimited powers in fixing prices.

Similarly, private sector player Balaji Amines, a specialty chemicals manufacturer, is the sole/largest Indian seller of many amine products, and enjoys a dominant market share, giving it a great competitive advantage.

List of Monopoly Stocks in India in 2024

• ITC - Enjoys more than 60% market share in cigarettes
• IRCTC – Sole provider of rail ticket bookings
• Coal India – State-owned producer responsible for more than 60% of country’s coal production
• NSDL – More than 85% market share in depositories (demat accounts)
• IEX – Holding more than 90% of short-term electricity contracts in India
• MCX – More than 90% share in India&rsquo's commodities exchange sector
• HZL – Dominant market share
• CAMS – India&rsquo's largest mutual funds transfer agency serving AMCs in India
• HAL – Sole maker of Tejas, the light combat aircraft

Factors to Consider While Investing in Monopoly Stocks in India

• A key factor to consider while investing in monopoly stocks in India is to know how long the monopoly will continue, if there’s a sunset clause the government has set for the monopoly to end.
• It's important to know how much pricing power the monopoly has in the sector.
• If it’s a monopoly in a high-margin business, then that monopoly status may not last as new players may be willing to enter given the attractive margins.
• Does it come under any regulated sector? If yes, what are the chances of the government creating conditions for more players to enter it?
• Is it a sunset sector? Is it a sector where the investor sentiment / worldwide opinion has turned against it? If the answers are all yes, then it may not be wise to invest in the stock(s).

Monopoly Stocks Divided By Market Caps

Like all stocks, monopoly stocks are also divided into three categories: large-cap, midcap and smallcap monopoly stocks

Balaji Amines is an example of a small-cap monopoly stock, Borosil Renewables of a midcap, and Coal India of a large-cap monopoly stock.

Benefits of Investing in Monopoly Stocks

• Protected by lack of competition, monopoly stocks can continue to enjoy a dominant market share along with great pricing power. This keeps their margins also intact, if not high. Investors in such stocks are thus assured of their money giving consistent returns with no emerging competition.
• If it’s a government company, the investors can be assured of the monopoly status continuing for longer. State-owned monopoly stocks also tend to consistently pay out high dividends. Investors can buy into such stocks due to their consistently high dividends, assuring them of a regular stream of income.