What are Cyclical Stocks? Bull & Bear Riders??

What are Cyclical Stocks?

Assume you recently moved into a rented room and planning to purchase a few household goods to equip it.

What would be your first purchase with your ₹30,000 salary?

If you are wise with money, you will say that luxuries like an air conditioner, washing machine, and vacuum cleaner can wait!

Cyclical stocks are the ones that represent items of comfort and luxury. They are traded based on the market’s economic situation. 

Read the blog to find out more. 

Content: 

Cyclical Stocks Meaning

Stocks that move based on the economic condition of the market are Cyclical Stocks. These stocks move up when the economy is doing well and move down when the economy not doing well.

Examples

  • Manufacturers and retailers of cars: Maruti Suzuki India Ltd., Hindustan Motors Ltd.
  • Construction: Steel Authority Of India Ltd., Shree Cement Ltd.
  • Furniture: Parin Furniture Ltd., Crown Crafts, Inc. 
  • Clothing: Lux Industries Ltd., Vardhman Textiles.
  • Real estate: Godrej Properties Ltd., Prestige Group.
  • Restaurants: Sapphire Foods, Oriental Hotels. 

Now, you must be wondering, if cyclical stocks depend on market fluctuations, why should you risk your money to purchase them? 

Let’s find the answer to this. 

Advantages of Cyclical Stocks

The advantages of cyclical stocks are- 

  1. High Growth Potential 
  2. Easy To Predict Its Prospects 
  3. Provides High Return 
  4. Easily Identifiable 

  1. High Growth Potential 

When the economy is at its peak, people work and earn well. They can afford to spend on cars, furniture, travel through airlines, go out to restaurants, and many more fancy things. 

So, cyclical stocks show tremendous growth potential when the market trend is bullish.

  1. Easy To Predict Its Prospects 

You can easily predict the performance of these stocks because they are highly sensitive to market trends. If the economy is doing good, people are likely to purchase such goods and services.

  1. Provides High Returns

Investors sell cyclical stocks when the stock prices are high. These prices are based on seasonal demand, which is why investors expect high returns.

During the peak phase of any business, cyclical stocks give the highest returns. 

  1. Easily Identifiable 

Cyclical Stocks are easily spotted in the market because they represent comfortable and luxurious goods and services. This makes it easier for investors to differentiate cyclical stocks from the other stocks.

As you have already learned the advantages of cyclical stocks, what’s stopping you from investing in them?  

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Disadvantages of Cyclical Shares

The Disadvantages of Cyclical Shares are- 

  1. Investors need to be timely with the market trends
  2. The probability of risk is high
  3. Uncertainty of the Profits

  1. Investors Need To Be Timely With The Market Trends

Because these stocks are market sensitive, it is recommended that any investor who invests in them keep a close eye on them to get a good deal.

Many investors find market monitoring challenging and time-consuming.

But, Alice Blue’s advanced trading app will help you do a quick market analysis with deeper info!

You can set up different market watches for different types of assets and track them all simultaneously.

You can add multiple stocks to your watchlist. You have the option of creating 5 watchlists, and simultaneously, you can monitor all your favorite stocks from a broader trading perspective.

So, log into the ANT Web Trading Platform & pin the tab to always keep an eye on the Stock Market.

  1. The Probability Of Risk Is High 

When the market is down, the value of these stocks drops dramatically. Severe economic fluctuations have a direct impact on the performance of these stocks. 

These stocks can barely produce profitable returns until the market improves.

  1. Uncertainty Of The Profits

This parameter is completely based on the consumer’s choices. It is uncertain whether a consumer will stick to one type of brand or service forever. During this type of situation, the value of these stocks falls. 

Even if the market is stable, reducing demands among consumers can affect the profitability of the stocks. 

Cyclical Stocks vs Non Cyclical Stocks

Refer to the table to understand the difference in detail – 

Cyclical Stocks Non-Cyclical Stocks
These are stocks that represent items of comfort and luxury. Eg. Airlines, Automobiles, manufacturers, hotels, and travel companies.   These are stocks that represent items of necessities and survival. Eg. Medicines, water, electricity, gas, and food. 
They are seasonal stocks. They are annual stocks. 
They are dependent on market performance. When the market is performing well, the growth of these stocks rises.  They are partially dependent on the market. 
These stocks are called offensive stocks because they will fall when the market falls and won’t protect investors from market crises. These stocks are called defensive stocks because they protect investors from market crises and are a good defense against them.

Cyclical Stocks In India

Refer to this table to know the best cyclical stocks in India – 

S.No. Name CMP Rs. P/E Mar Cap (in ₹) Div Yld (%) NP Qtr (in ₹) Qtr Profit Var (%)
1 Hinduja Global 960 0.68 4012.37 11.63 5686.28 3620.39
2 H P C L 211.05 4.07 29938.42 10.82 2018.45 -34.05
3 I O C L 103.45 3.87 97389.49 7.7 6645.72 -26.38
4 Manaksia 69.9 2.52 458.16 4.35 67.91 2405.9
5 Andhra Petrochem 73.65 2.77 625.79 4.07 22.21 -52.74
6 Guj Inds. Power 72.6 6.39 1098.14 3.75 54.66 23.83
7 Bhansali Engg. 99.4 4.69 1649.1 3.08 73.12 -55.2
8 Kalyani Steels 267 4.8 1165.7 2.81 68.4 -9.85
9 Man Industries 72.3 4.31 434.57 2.76 26.51 2.51
10 Godawari Power 226.35 2.27 3190.32 2.03 406.52 -3.05

Quick Summary

  • Cyclical Stocks perform based on the economic condition of the market. When the market performs poorly, cyclical stocks are the first ones that the investors side. 
  • The advantages of cyclical stocks are- 

    • High growth potential 
    • Easy to predict its prospects 
    • Provides high returns 
    • Easily identifiable 

  • The Disadvantages of Cyclical Shares are- 

    • Investors need to be timely with the market trends
    • The probability of risk is high
    • Uncertainty of the profits

  • The difference between Cyclical and Non-Cyclical Stocks is listed in the table above. 

FAQ

1. What are the best cyclical stocks in India?

Below are the most frequently traded cyclical stocks:

  • HEG Ltd.
  • Honeywell Automation India Ltd.
  • Shree Cement Ltd.
  • Asian Paints Ltd.
  • Tata Steel Ltd.

2. What are deep cyclical stocks? 

Deep cyclical stocks belong to industry groups like mining, steel, autos, homebuilding, and other economically sensitive sectors.

3. What is a non-cyclical stock?

Non Cyclical stocks are defensive stocks that protect investors from market crises and are a good defense against them. These are stocks that represent items of necessities and survival. E.g. Medicines, water, electricity, gas, and food. 

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About Author

Ashmita Saha

Ashmita Saha completed her Post Graduation from St. Joseph’s College in the domain of Journalism and Mass Communication. She has a strong profile of working with prominent media houses. After serving an EdTech company as a Content Head for a year, Ashmita has trodden towards the world of Financial Writing with her expertise in Copywriting, Blog Writing, and Social Media Marketing.

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