How to invest in cyclicals

In the tricky world of stocks, investing in cyclicals is even trickier. Unlike secular-growth non-cyclical businesses, cyclicals aren't long-term buy and hold. You can't expect them to organically build wealth. Of course, as the Indian economy itself has done well over the long term, even cyclicals have turned into long-term compounders, but as the economy matures, this may not be the case. Let's see how to profit from cycles then. KEY TRENDS TO TRACK GROWTH IN REVENUES: At the start of an upcycle, revenues start to witness growth. They start to fall as the downcycle approaches. OPERATING INCOME AND MARGIN: Most cyclical companies are asset-heavy. Irrespective of the changes in revenues, their fixed costs remain the same. Hence as revenues jump, the company starts reporting high operating profit and margins. This could signal a reversal in cycle. DEBT POSITION: Being asset-heavy, cyclical companies can take substantial debt for capital expenditure to meet the anticipated demand. Typically, at the peak of the cy