We at Stallion Asset use a lot of Data analytics to find the next trend. For those who understand the Market, know that post 2015, there has been a massive shift from Secular Stories to Cyclical Ones. Cyclical Stories like Paper, Sugar, Chemical have given mind blowing returns whereas secular stories like Pharma, IT and Telecom have under performed the market.
We divided 19 S&P BSE Sectoral Indices in 2 categories, Secular and Cyclical.
Secular Business’ are the ones that are not affected by business cycles, whereas cyclical ones are affected a lot by the general economy. Cyclical Stocks are the ones whose profits are linked to the overall economic performance. Cyclical Stocks perform well during bull period whereas Secular Stocks perform well during Bull & Bear market although cyclical stocks can give you massive returns in a bull market.
Cyclical Stocks are inherently risky and have high beta. Lets see the returns of Cyclical Stories v/s Secular Stories. We have created an Equal weight Index of Indexes of Secular Stock V/S Cyclical Stocks. Cyclical stocks have not performed in this bull market since 2010 and 100 invested in cyclical stocks is still at same level whereas secular Index have more than doubled in last 6 years.
Nifty has given 50% returns in last 6 years, all of that return is from Secular stocks, whereas Cyclical Stocks have given near 0% return in the same period. The trend is shifting towards cyclical stocks in the last one year as measured by relative strength. Below is the Relative Strength Chart of Secular Stocks V/S Cyclical Stocks. If the Below chart goes higher it means that secular stocks are outperforming cyclical ones and vice versa.
We at Stallion Asset believe that cyclical Stock will perform relatively better than secular stock if nifty manages to stay above 9000. If nifty corrects 3-4%, We at Stallion Asset would be accumulating a lot cyclical stocks.
Which Cyclical Sector will be performing the best?
Our proprietary model show’s that Fertilizer, Textile, Power Ancillary and Road Construction should do well for next 1-2 years and outperform secular stocks. A lot of these companies are at inflexion point and can give massive profit as capacity utilization improves and economy picks up.
Destiny of Cyclical Stocks seem to be a lot better with a Stable BJP -NDA Govt at the centre which has led to three things First, strong macro in India in terms of growth,Second, stable inflation and three, very strong capital flows.
Cyclicals are mostly a commodity play & Order Books of Cyclical Stocks have started showing early signs of Pick up. Cyclical’s are boring businesses, But most of companies in the sector have been around for a long time, and therefore, they have a proven ability to survive bad times. All these factors suggest The future of cyclical stocks looks bright.
The demand in consumer discretionary space which had been constrained has started picking up post demonetization & as this story plays out , we will see capex creeping in and further give a boost to the cyclicals
However Art & Philosophy of Stock Picking Whether Cyclical Or Secular is still important.