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Understanding Cyclical Stocks & Defensive Stocks

While reading about markets we have often come across terms like cyclical stocks or defensive stocks. Let's understand that which stocks should be part of your portfolio in different phases of your economic cycles.

Cyclical Stock

• A cyclical stock is an equity security whose price is affected by ups and downs in the overall economy.
• Cyclical 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.

Defensive Stock

• A defensive stock is a stock that provides a constant dividend and stable earnings regardless of the state of the overall stock market.
• Because of the constant demand for their products, defensive stocks tend to remain stable during the various phases of the business cycle e.g. Pharma, IT, FMCG, Telecom & Consumer Staples.

Source: HSBC Mutual Fund

An Investor Education & Awareness Initiative

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