Cylical Stocks To Do Well

Above average returns are possible in equity investments if one can catch the broader trend early. If 2020 was all about the defensive stocks, especially pharmaceutical and IT stocks, in all likelihood 2021 may belong to the cyclical sector stocks. A change in portfolio stance is all that is required in order to outperform the markets in 2021, from defensives to cyclical stocks. Yogesh Supekar explains what exactly ‘cyclical stocks’ are and discusses why cyclical stocks may do well in 2021

- Yogesh Supekar

Active investment management is all about strategic and tactical portfolio management decisions. Strategic portfolio management decisions are usually those which are made keeping a long term investment horizon in view and also includes decisions on asset allocation. For example, keeping 60 per cent exposure in equity and 40 per cent exposure in bonds is an example of strategic asset allocation. Tactical decisions are made keeping in mind short to medium term tenure. For example, giving higher weightage to private banks with a 12-18 months’ kind of timeframe is a tactical portfolio decision.

Those active investors who could assess intelligently, and early, sectors that would remain pandemic- proof have easily made tons of money in 2020. Clearly, IT and pharmaceutical stocks showed a superlative performance in 2020 and those investors who were tactically well-positioned for such a move have reaped great rewards for taking the right portfolio decisions.

Says Chetan Tupe, an active HNI investor: “I have always been a big fan of IT stocks. If you study the historical performance of the sectoral indices in India, it is the IT index along with banking and FMCG indices that has generated the best returns.”

“It was not very difficult, after the lockdown was announced, to understand which sectors would do well and which may not. The pharmaceutical sector obviously was an easy bet along with IT stocks. I simply increased the weightage in pharmaceutical and IT stocks while reducing the weightage in financials and banking stocks. Defensives usually do well when the markets are going through a tough period. Such tactical moves always help to generate above-average returns,” he adds.