NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
In industry analysis, which of the following best describes the 'cyclical' nature of an industry such as automobiles or cement?
A cyclical industry is one whose earnings rise during economic expansions and fall during slowdowns, because demand for its products depends strongly on income and overall economic activity. Automobiles and cement are typical examples, unlike defensive sectors such as FMCG.
- AIts earnings move broadly in line with the business cycle, rising in expansions and falling in slowdownsCorrect
- BIts demand remains stable regardless of the economy
- CIts earnings are dependent only on government subsidies
- DIts products have no substitutes
Explanation
Cyclical industries sell products whose demand is sensitive to income and economic conditions, so sales and profits rise in booms and fall in downturns. Defensive industries, not cyclical ones, show stable demand across the cycle.
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