The Ultimate Guide to Understand Both Cyclical and Non-Cyclical Stocks

Cyclical and Non-cyclical Stocks

The stock market includes a variety of stocks that can be categorized based on how they perform relative to the economic cycle. Two main categories are cyclical and non-cyclical stocks.

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What are non cyclical stocks

Cyclical stocks are those that are significantly affected by the economic cycle. Their performance tends to follow the ups and downs of the economy. When the economy is doing well, these stocks generally perform well. Conversely, during economic downturns, their performance typically suffers.

Characteristics of Cyclical Stocks:

• Sensitive to economic changes.
• Tend to have higher volatility.
• Often belong to industries like automotive, construction, luxury goods, and travel, Commodities, Chemicals etc

Examples of Cyclical Stocks:

• Automobile Companies: Tata Motors, Maruti Suzuki etc. 
• Construction Companies: Larsen & Toubro, DLF etc.
• Luxury Goods: Titan 
• Travel and Leisure: Indian Hotels, SpiceJet, Interglobe Aviation etc

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What is a non-cyclical stocks?

Non-cyclical stocks, also known as defensive stocks, are those that are not significantly affected by the economic cycle. These stocks tend to remain stable regardless of economic conditions because they belong to industries that provide essential goods and services.

Characteristics of Non-Cyclical Stocks:

• Less sensitive to economic changes.
• Tend to have lower volatility.
• Often belong to industries like utilities, healthcare, and consumer staples.

Examples of Non-Cyclical Stocks:

• Utilities: NTPC, Power Grid Corporation.
• Healthcare: Dr. Reddy's Laboratories, Cipla.
• Consumer Staples: Hindustan Unilever, ITC.

Also Read: What is Small and Medium-sized Enterprises (SME) : Definition and Examples

A Short Comparison:

Investment Considerations

Investing in cyclical or non-cyclical stocks depends on your investment strategy and risk tolerance.

For Cyclical Stocks:

• These can offer significant returns during economic booms but can also suffer steep losses during downturn. Since, Cycle of sectors plays very important role on such companies.
• Timing is Key: Success often depends on correctly timing the economic cycle.

For Non-Cyclical Stocks:

• Stability and Safety: These stocks are safer during economic downturns, offering steady returns.
• Long-Term Investment: Ideal for investors looking for consistent performance over the long term.

Also Read: ROE vs. ROCE: Detailed Analysis of Return on Equity and Return on Capital Employed