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Business News/ Brand Stories / Leveraging Business Cycle Investing for Wealth Creation

Leveraging Business Cycle Investing for Wealth Creation

Explore the wealth-building potential of business cycle investing, leveraging macroeconomic trends to strategically position your portfolio for growth and resilience.

Navigating economic waves: Harnessing business cycle investing for financial successPremium
Navigating economic waves: Harnessing business cycle investing for financial success

Businesses' trajectory is not always linear and there are times when businesses could be in different sets of cycles. There could be phases of growth, slump, recovery as well as expansion cycles. In fact, these cycles are part and parcel to any businesses' overall performance in the long-term, thus presenting a range of investment opportunities. An understanding of these cycles while making an investment decision can potentially enhance the overall wealth creation journey.

What is Business Cycle based investing?
Different sectors have different business cycles. It is important to note here that it is not necessary that every business would react or respond to a particular economic situation in the same fashion and the time they take to react also differs. And this is exactly where the wealth creation potential is hidden. Thus, investment based on business cycles is a strategy which endeavours to capitalize on these opportunities.

How to figure out a Business Cycle

Identifying the business cycle or a phase which a company or a sector is in, is based on multiple factors. For example, signs like, spending cuts by consumers, job cuts, no increment in salaries, low confidence of consumers and businesses, delaying or postponing expansion plans and slippages in capacity utilization are clear indicators of an upcoming slowdown. On the other hand, rising consumers' confidence and spending, factories operating at full capacities, expansion spree while rise in job offers amid increasing remunerations suggest a growth phase. Comprehending such trends well in advance and accordingly making suitable changes in the investment portfolios can help create wealth.

Understanding Business Cycle Based Investing
The investment strategy a business cycle based investing follows is a top down approach, as this strategy depends on the macro-economic factors. The investment team determines which sectors would grow in that particular phase, taking into account macroeconomic factors. However, it does not mean that this strategy is equivalent to value investing or is based on contrarian investment calls.

Moreover, business cycle based investing has the flexibility to invest across market caps with no capping limits. Depending on the market cycle, the fund manager identifies the sectors and the stocks within these sectors when putting together a portfolio. Given this approach, business cycle investing adds a dynamic investment style with an aim to capitalize on the opportunities, anywhere and anytime.

Is it a suitable time to go for Business Cycle Investing?
Cycles in businesses are a never ending phenomenon.The prevailing macro-economic conditions offer an idle circumstance to opt for a business cycle based investing approach. Globally, advanced economies are expected to lower borrowing as global inflation eases from multi-decadal highs. At the same time, the Indian economy is faring much better when it comes to macroeconomic factors. A plethora of fast-tracked reforms and faster execution of policies by the government are likely to benefit the domestic economy which appears to be far more resilient and growth-oriented.

How should investors benefit from business cycle investing?
Often, common investors find macroeconomics hard to grasp. Given the complexities involved, it is difficult for regular/common investors to take an investment call. It is here that professionally managed and process driven investment vehicles like mutual funds come to the rescue of investors.

The thriving mutual fund industry offers schemes which are based on business cycle investing. Under the name of Business Cycle Funds, this set of schemes facilitate investors to capitalize on the opportunities arising out of macroeconomic factors. It is prudent for investors to opt for such funds as a suitable and convenient way to take advantage of the business cycle dynamics and keep their portfolio relevant as per the changing times. When investing in such an offering, an investor should have an investment horizon of at least five years and more.


N. Krishna Anand, Mutual Fund Distributor
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N. Krishna Anand, Mutual Fund Distributor

This article has been authored by N. Krishna Anand, Mutual Fund Distributor.



Disclaimer: This article is a promotional feature and it doesn't have journalistic/editorial involvement of Hindustan Times.


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Published: 22 Apr 2024, 03:12 PM IST
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