With Indian stock market
looking for its direction, equity investors are hard-pressed to search
opportunities for reaping gains. But if one looks carefully, there are a few
specific themes, which have carry potential. These are cyclical stocks, which
move in sync with broader economic scenario or sectoral fortunes and whose
performance is very much dependent on economic ups and downs. In fact, the
financial situation of these companies is highly dependent on various macro
factors and if these factors show fluctuations, this, in turn, is reflected in
the performance of these companies. Another important thing to note is- these
companies flourish during specific periods of the year and these cycles repeat
themselves. Consequently, share prices of these companies move in predictable
patterns.
Experts are of the view
that these can be bought for short term (a few months at least) for reaping
significant gains. Looking at it with investors' perspective, these stocks can
improve the return of their portfolio if one is able to buy and sell these
stocks at right time. Means, timing is really crucial as far as getting benefit
from these stocks is concerned. One should note that he should be able to enter
in these stocks before the start of up move and exit from these before they
start falling. Let us have a look on these stocks.
Rail stocks
Kernex Microsystems
(India), Kalindi Rail Nirman (Engineers), Titagarh Wagons, BEML, Stone India,
Texmaco and Hind Rectifiers; what is the similarity among these stocks? These
stocks have shown regular tendency of surge prior to rail budget in comparison
to benchmark indices. In year 2008, the railway budget (for year 2008-09) was presented on 26th February. On the day, BSE Sensex touched the
level of 17,860 on higher side, posting a rise of 5.37 per cent in comparison with the closing of February 13, 2008. During the same period, share price of Kernex Microsystems (India), Hind
Rectifiers, Texmaco and Kalindi Rail Nirman (Engineers) zoomed in a range of 28-36 per cent.
The railway budget for
year 2009-10 was presented on the floor of parliament on July 3, 2009. Sensex touched the high of 14,946 that day, which resulted in over 23
per cent growth in comparison with the closing level of 4th May 2009. During the same period, shares of BEML, Texmaco, Titagarh Wagons, Kalindi
Rail Nirman (Engineers) and Kernex Microsystems (India) had soared in three
digits.
AC stocks
Demand for summer-related
products is cyclical or seasonal. A number of products like fans, coolers,
air-conditioners and refrigerators show higher demand during summers,
especially in north India. So, it makes sense to go for summer-demand related
seasonal stocks like Bluestar, Whirlpool, Hitachi Home, Voltas, IFB Industries
and Bajaj Electricals. If we look at the past trends of these stocks, these
have shown surge during the months of summer-that is, the period between May
and October. Barring 2011, the performance of these stocks has been
encouraging during these months. During these months in 2009, the stock
of Bajaj Electricals surged over 267 per cent, while Whirlpool soared around 261 per cent. Other stocks like Bluestar, Hitachi Home, Voltas and IFB
Industries reported increases in the range of 91 to 168 per cent, while the Sensex had jumped nearly 40 per cent
during the period.
The trend continued in
the summer months of 2010 as well, when Voltas, Whirlpool and IFB
Industries went up by 35.69 per cent, 57.32 per cent and 81.03 per cent, respectively, while the Sensex rose around 14 per cent.
Auto stocks
The last few months of
the year bring happiness for consumption-driven companies. As the demand for
their products increases due to festive season, this, in turn, boosts
profitability of these companies. Sales of automobiles pick up during October
to December on the back of festivals. As automobile companies benefit from this
season, this is positive for auto stocks as well. However, the sector is
feeling some pressure in demand currently due to various reasons, things may
turn around if interest rates go down and monsoon fares better.
In the festive season of
year 2009, the BSE Sensex had soared 9.67 per cent,
but BSE Auto Index outperformed the former with a growth of 24.42 per cent. The trend continued during the festive season of year 2010 as well. In that year, BSE Auto index had risen 21.08 per cent,
while the Sensex had risen 13.43 per cent during the same period.
Tours and travels stocks
Summer months- beginning
from April and stretching to July- are the peak holiday season, in north India.
During summer months a number of people start surfing websites of tour and
travel companies or start approaching travel agents for planning their trips.
Due to this demand, companies related to tours and travels report a surge of 40-50 per cent in their business during the April-June quarter over the previous
quarter. Experts say that the increase in business benefits the stocks of these
companies too.
During May-October 2010, stock prices of International Travel House, Transcorp International and
Cox and Kings surged 61 per cent, 25.33 per cent and 14.61 per cent respectively. During May-October 2009, stocks of
International Travel House and Thomas Cook had shown a jump of 50
per cent and 29.67 per cent respectively.
Other old economy sectors
such as cement, chemicals and banks as well can be classified under
cyclicals as they move in tandem with the economic growth or downturn or
economic policies such as interest rates. Stocks related to these sectors as
well move in patterns in normal situations and investors can take benefit of
these patterns.
Things to remember
How much encouraging the
past trends may be, investors need to assess the fundamentals of the companies
before making an investment in these stocks. Not only this, one should not
invest each and every company of the sector, they must zero in on a
fundamentally sound company. Besides, one should take into account the
credibility of management, track record, market positioning of various products
and distribution strength of the specific company.
Apart from that, the
relative valuation of the stock with other stocks should be taken into
consideration. Generally, the best time to buy these stocks is when valuations
of these stocks are down and share prices are below the book values. Experts
are of the view that these stocks can be given a maximum allocation of 20
per cent in one's portfolio, however, it totally depends on risk profile of the
investor.
One should not overexpose
his/her portfolio to cyclical stocks. Reason behind this is very simple.
Sometimes these stocks don't perform as per their pattern. Another important thing
to note is- sometimes these stocks start showing upwards move well before their
specific period. Hence, one should keep an eye on the movement of these stocks.
(Published in Money
Mantra)
