BUSINESS CYCLE INVESTMENT PLAN

2. Business cycle
 It is also known as the Economic cycle or Trade cycle,
 It is continuous process of expansion and contraction of
real gross domestic product (GDP) which happens
periodically in regular fashion.
 It implies that the prosperity or depression effect of the
phase will be affecting all industries in the entire
economy and also affect the economies of other
countries.
 Real gross domestic product is calculated against the
base year GDP and nominal GDP.
 Here the human emotions are there when economic level
(GDP) changes happens.

3. Explanation
 It is simply explained by the wave form.
 The combination of expansion and contraction
is one complete business cycle.
 It need not be uniformity in the extent and
magnitude.
 Rising prices, production, employment, and
prosperity will become the features of
expansion.
 Falling prices, unemployment will become the
features of the contraction.
 The government manages the business cycle by
controlling GDP using fiscal policy.

4. Stages of Business cycle
 National Bureau of Economic Research [NBER] determines business cycle
stages using quarterly GDP growth rates.
 There are 5 stages/phases of business cycle
RECOVERY
TROUGH
RECESSION
PEAK
EXPANSION Growth in a economy
Overheated economy
Deficit in a economy
Gone to weaker stage
Economy rising gradually
Price
level
rises
Price
level
falls

5. Human emotions
 Human emotion’s are vital in an economy because investors emotions will may
vary depends upon expansion and contraction respectively.
Expansion
/Peak
Recession
/Trough
Recovery
1-Optimism
2-Excitement
3-Thrill
4-Euphoria
5-Anxiety
6-Denial
7-Fear
8-Desperation
9-Panic
10-Captulation
11-Despondancy
12-Depression
13-Hope
14-Relief
15-Optimism
This emotion wave tells us When should
invest and when should not..

6. 1.Expansion:
 In this stage, there is an increase in positive economic indicators
such as employment, income, output, wages, profits, demand, and
supply of goods and services.
 Debtors are generally paying their debts on time, the velocity of
the money supply is high, and investment is high.
 This process continues until economic conditions become
favourable for expansion.
 Expansions last on average about three to four years, but they
have been known to last anywhere from 12 months to more
than 10 years.

7. 2. Peak
 The economy then reaches a saturation point.
 The maximum limit of growth is attained.
 The economic indicators do not grow further and are at their highest.
 Prices are at their peak.
 This stage marks the reversal in the trend of economic growth.
 Consumers tend to restructure their budget at this point.

8. 3. Recession
 The recession is the stage that follows the peak phase.
 The demand for goods and services starts declining rapidly and
steadily here.
 Producers do not notice the decrease in demand instantly and go on
producing, which creates a situation of excess supply in the market.
Prices tend to fall.
 All positive economic indicators such as income, output, wages, etc.
consequently start to fall.
 When the GDP declines over two consecutive quarters, a
recession occurs

9. 4. Depression
 There is a commensurate rise in unemployment.
 The growth in the economy continues to decline, and as this falls
below the steady growth line, the stage is called depression.
5.Trough
 In depression stage, the economy’s growth rate becomes negative.
 There is further decline until the prices of factors, as well as the
demand and supply of goods and services, reach their lowest.
 The economy eventually reaches the trough. This is the lowest it
can go.
 It is the negative saturation point for an economy. There is
extensive depletion of national income and expenditure.

10. 6. Recovery
 In this phase, there is a turnaround from the trough and the
economy starts recovering from the negative growth rate.
 Demand starts to pick up due to the lowest prices and
consequently, supply starts reacting, too.
 The economy develops a positive attitude towards investment
and employment and hence, production starts increasing.
 In this phase, depreciated capital is replaced by producers,
leading to new investment in the production process.
 Recovery continues until the economy returns to steady growth
levels.

11. How Business cycle helps investors
 The analyzing the business cycle ,helps the investor to know
about the level of current economy and past trend.
 This brings them awareness about when to invest and when
shouldn’t.
 In general, It is bad to invest at the time of business cycle peak
and good time to invest is at the time of trough.
 And just inverse of above statement while sell the fund.
 What are the investors want to do and what they should not.

12. Do’s of an investor
 Why would an investor are being asked to do.
What is your experience. How long have you had the idea?
 Find out a lot of information out there and a lot of opinion.
 Discover what types of investment and organisations you should
consider approaching.
 Be ready in researching potential investors who may invest in your
product/service is an area in which they have no interest.
 Investors are far more likely to respond favourably to an
introduction from a contact – try where possible to get a warm
introduction.
 Have a clear idea of how much money you need and how it
deployed.

13. Do’s of an investor (cont..)
 Invest in yourself ,this will give confidence. Confidence is crucial.
 Have a team around you or at the very least key individuals identified. Your
team should have balance and a range of expertise to deliver on the investment
you are hoping to secure.
 Prepare an Executive Summary in which you are 100% familiar, a realistic
Business Plan which should include financial figures for a minimum of three
years and do not forget about a robust sales and marketing plan.
 Look for the methods of investment at expansion time to avoid risk and loss.

14. Methods to invest at expansion
Large cap mutual fund
 Their investment in companies that have a large market capitalization, i.e., greater
than Rs.20,000 cr.
 They tend to remain stable than other companies during market volatility.
 Investors who want to earn returns without being exposed to severe market
fluctuations.
Diversified equity fund
 Here we can invests in companies regardless of size and sector whether they are Large
caps or Mid caps or Small caps.
It diversifies investments across the stock market in a bid to maximize gains
They are offered by unit-linked insurance plans (ULIPs), mutual funds and other
investment firms.
There are two general methods to invest at market expansion period.

15. Don'ts of an investor
 Do not deploy the proposed investment as salary! Investors
recognise that you will need to be motivated and able to live
whilst you are delivering the growth of your business which
coincides with the return on their investment.
 Do not get struggle in your value of the initial investment.
 Don’t disagree any terms while investing.
 Do not agree to overly restrictive terms – always take a longer-
term view.
 Investors cannot help themselves but poke holes in your
assumptions, forecasts and strategies – it is human nature.

16. Don'ts of an investor (cont..)
 You will be asked to restructure your company and/or dilute your shareholding.
Don’t take any request personally and take time to consider and evaluate the
proposals as dispassionately as you can.
 Don’t always bear in mind the long-term success of your business.
 Remember, investors will inevitably offer you “constructive” criticism. Try not to
take their comments the wrong way!
 If they are uninterested in business they are unlikely to be asking any searching
questions at all! You are gaining an insight into investors thinking and even if
they eventually say no you will have picked up valuable information.

17. Conclusion
 Two methods suggested the investors at expansion time to invest in
large cap and diversified equity funds.
 Whatever you choose should follow all the analyzing methods to
avoid risk.
 Get full knowledge and then proceed.
 Even though, Investing in Mutual Funds can, however, be risky and
it is recommended to consult an expert for alternative.
 Don’t invest large amount in a single stock. [E.g.- Don’t carry many
eggs in a single basket].

18. From
MERLIN
JENIFER
MANJULA
HARIKRISHNAN
AJITH KUMAR
VIGNESH
Reference link:
www.investopedia.com
Video link: business cycle