Many of the commodity-based sectors see cyclical trends as can be seen in metals, oil, shipping, sugar, commercial vehicles, capital goods etc.
The point to remember while investing in these pockets is that there will be times when these companies will do very badly, which should be the ideal time to buy, and there will be times when these companies do very well, which are times to sell.
The key understanding here is the best time to buy a cyclical stock is when their share price is low and not when their earnings are high.
For example, when sugar prices are at their bottom, sugar stocks will be at the bottom, but their valuation in terms of price to earnings, will be very costly.
So it is important to buy cyclicals based on share prices rather than earnings.
–said S Naren,CIO,ICICI Prudential Asset Management