What is Cyclical Sector and Defensive Sector in Stock Market?

What is Cyclical Sector and Defensive Sector in Stock Market?

Cyclical Sector and Defensive Sector Have you ever noticed that as the economy fluctuates, some stocks react extremely, while a few others remain unaffected! Called as Cyclical Sector and Defensive Sector, knowledge about these stocks can help you plan your investment portfolio. Let us understand them in detail. What is a business cycle? Have you ever sat on a roller-coaster ride? You feel good while going up. As it comes down with faster speed, you experience panic and fear. The occurrence of ups and downs in an economy over a period of time is called as business cycle. This cycle causes similar reactions like the roller-coaster. As the economy grows, the employment level, production, sales, income grow as well. The opposite is true during an economy’s decline. Decoding cyclical stocks Stocks that are affected by a business cycle are termed as cyclical stocks. Thus, as the economy grows, their price increases. And as the economy slows down, their price falls. Let us take an example of automobile companies. If the economy is booming, you have good savings. You would consider changing or buying car. So, the demand for cars will go up. The sales will increase. The profits will rise. The stock prices will also move up. On the other hand, during an economic slowdown, when your job security is low and you are not earning enough, buying a car is a luxury. So, the stock prices of automobile companies will fall. Such stocks are called cyclical stocks. Investing in cyclical sectors is risky due to the significant ups and downs. Although they carry the risk of loss, you can...
Thinking about Bottom Fishing ? Here are the details

Thinking about Bottom Fishing ? Here are the details

How to learn Bottom Fishing? You must have noticed that many stocks such as Sri Adhikari Brothers Television Network Ltd (SABTN), Dr,Reddy’s and Coal India are trading below or near their all-time low prices and you might think to yourself that this would be the best time to enter such stock since you will be able to make big bucks when the market and/ or the stock’s turnaround. What you are doing here is what is called bottom fishing. What is bottom fishing??? Bottom fishing refers to investors scouting for stocks that have reached rock bottom prices owing to some temporary issues either with the company or the sector or with the economy in general. It’s somewhat like fishing. But the whole thing rests on investor’s perception that the stock price has hit rock bottom temporarily and will bounce back, both of which are never guaranteed. Bottom fishing, therefore, involves a lot of risks. Investing in banking stocks during the financial crisis is an example of bottom fishing. Simply speaking, an investor construes such low price of stock as an opportunity for picking up good stocks that are trading at such low prices due to some issues that are of temporary nature. Stocks such as NMDC and Aban Offshore that got badly battered fall in this category. To do or not to do bottom fishing Central to bottom fishing is an investor’s perception or belief that the stock is undervalued, which makes him pick up badly battered stocks especially in a bear market. The investor believes that when markets move the investment will turn profitable. But you must understand...