Cyclical Stocks

Cyclical Stocks - 

Cyclical stocks are equity securities whose price is affected by the ups and downs in the overall economy. These stocks typically relate to companies that sell discretionary items consumers can afford to buy more of in a booming economy and cut back on during a recession.

Prices of these Stocks are Influenced by changes in the economic business cycle.

There are certain business In India which is considered to be Cyclical In nature - 

• Banking and Financials.

During the recession or when the economy doesn't perform well. The Interest rates also called Repo Rate trends to be lower. The RBI continuously regulate the Interest rate basis the liquidity available in the market.

As the Interest rate goes down, It eventually lets people save money which they were paying as Interest against the loan amount. 

The falling Interest rate also encourages people to buy new loans, like, Home Loans, Car Loans, Business Loans etc.

•  Construction and Auto - 

Reducing Interest rates, Increases sales of Homes and Cars. This lifts up Shares of the Real Estate and Auto Companies over a period of time, this could be considered up to some quarters or sometimes up to a couple of years.

There is a cascading effect on the Economy, Increase in Auto also Increases the sales of the Auto parts and Auto Ancillaries.

Likewise, Increase in the sales of Home also lead to Increase in sales of Cement, Iron etc.

• Rubber Industry -

India Imports 70-80% of its rubber from China, Rubber prices periodically changes In China, depending upon the production and the Rainfall.

As the prices soften in China, Imports suddenly Increases and it benefits Rubber or Tyre manufacturing companies in India. The Raw material cost for the rubber companies comes down.

You can see this graph representing falling prices of Rubber over the last few years - 

Paint and Emulsions - 

Paint Industry performance is largely dependent on crude prices, they use Crude as the raw material for the production of Paint and bi-products. The profitability of these companies directly dependent on the Crude Price to the large extent. Some of the companies are AsianPaints, Nerolac Paint, Berger Paint etc.

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