Performance of non-cyclical stocks in India

Coronavirus pandemic has caused the worldwide economy to fall. However, there are a few industries which have managed to withstand the economic downfall even in such a situation. The businesses in these industries are known as ‘non-cyclical’ or ‘defense’ stocks as they comprise of essential commodities such as utility goods like gas, pharmaceuticals and hospitals.

Moreover, these commodities and services have an inelastic demand, which means that the demand for such goods will be constant, irrespective of the prevalent economic conditions. This increases the share price of the non-cyclical stocks.

S&P BSE Healthcare sector gained approximately 19 per cent from January 2, 2020 to June 8, 2020 as against Sensex returns of -16.98 per cent. The share price of the pharmaceutical companies like Abbott India and Aarti Drugs Limited went up by 1.2 times and 2.05 times, respectively, since the lockdown.

Gas, being one of the essential commodities, was not impacted during this economic downfall. The consolidated net profit of Gujarat Gas increased 114.80 per cent to Rs 250.46 crore and with 39.8 per cent jump in the net sales to Rs 2,666.63 crore in Q4 March 2020 YoY.  Gujarat Gas stock went up by nearly 38 per cent and Mahanagar Gas was up by around 41 per cent ever, since the onset of the lockdown.

Fast-moving consumer goods (FMCG) companies like ITC, Hindustan Unilever, Nestle and Britannia Industries are also a part of non-cyclical stocks. Britannia Industries share price grew by around 52 per cent; Nestle India’s share price grew by nearly 24 per cent during the period of lockdown i.e. since its imposition on March 24, 2020 till today on June 8, 2020.

Non-cyclical stocks have outperformed the cyclical stock during the economic crisis and investing in such defense stocks is a good way to avoid losses, especially at a time when cyclical companies are suffering.