Summary
Even though it may not seem so at first glance, it is a fact that a vast majority of businesses are subject to a cyclical element. Would you call FMCG business a cyclical or secular business? Broadly speaking, it would be called secular as the demand for products is there throughout the year. But in fact, a good or bad monsoon brings a cyclical element to the business as demand in rural areas gets affected. That is why this concept of YoY and QoQ was brought in so that this cyclical element is taken into account. However, there are some sectors and industries which were cyclical ten years ago. They are still cyclical but the cyclical element has decreased. The overall demand has increased which has made their balance sheets look much better than before and with each passing year, the secular element of demand is increasing.
When it comes to assigning a price-earnings ratio to stocks, a very important element that is taken into account is whether the business is cyclical or secular. The latter is valued at a higher multiple due to the certainty of cash flows, which helps in better capital management. While the economy has grown, there are some companies that are still cyclical in nature, but the element of cyclicality has declined. Essentially overall
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