NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
Which of the following best describes a cyclical industry, as distinct from a defensive industry?
A cyclical industry has earnings that move strongly with the business cycle, rising in expansions and falling in downturns, as seen in automobiles or capital goods. Defensive industries like staple foods have stable demand regardless of economic conditions.
- AIts earnings move strongly with the business cycle, as in automobiles or capital goodsCorrect
- BIts demand stays stable regardless of the economic cycle, as in staple foods
- CIts earnings are unaffected by interest rates and income levels
- DIts sales rise only during recessions
Explanation
Cyclical industries such as automobiles, capital goods and real estate see sales and profits rise sharply in expansions and fall in downturns. Defensive industries such as staples and utilities have stable demand. The other options describe defensive behaviour or are incorrect.
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