InvestorQ : What is meant by cyclical stocks and what should be investment strategy?
ishika Banerjee made post

What is meant by cyclical stocks and what should be investment strategy?

Answer
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Anu Biswas answered.
2 years ago


Cyclical stocks are hard to define but very broadly they can be defined as stocks that do not show consistent pattern of growth and profitability. On the contrary, their growth tends to be spasmodic depending on the ups and downs of the cycles that they are exposed. Here are some examples…

Metal stocks tend to be cyclical because they are dependent on metal demand, which is not always linear. Additionally, the prices of metals go through long term cycles. We have seen the metal cycle bottoming out in 2003 and then peak out around 2012. They typically move in super-cycles and these metal stocks tend to outperform during the up-leg of the cycle and underperform during the down-leg of the cycle.

Capital goods are also cyclical since they are dependent on the investment cycle in the domestic economy and the world. For example, since 2011, capital goods in India were on a down-cycle as domestic and global investment in capital projects had slowed down. This impact was evident in the price of stocks like L&T and BHEL which went into a major downturn during this period.