Secular trend
A long-term shift in how goods or services are produced or consumed, driven by technology, regulation, demographics or lifestyle — unrelated to any single year's economic cycle.
In plain language
Some changes in an industry come and go with the economy. Others do not go away even when the economy recovers, because they are driven by something more permanent than the business cycle.
Those lasting shifts are secular trends. They cause value to move between industries or between companies within an industry, and they can persist across many economic cycles.
How it works
The workbook: "secular trends are long term trends that cause displacement in production or consumption of goods and services," driven by factors such as changing consumer preference, technology, regulation and demographics. Chapter 6.5 gives its own examples: GST implementation reshaping certain industries, and horizontal drilling technology enabling shale exploration.
Secular trends matter to industry classification too — the workbook's defensive industries (food, agricultural inputs, healthcare) are described as being affected only by secular trends, not by the economic cycle at all.
A worked example
Illustrative. The shift to digital payments in India — UPI transaction volumes rising from a few million a month in the late 2010s to billions a month within a few years — is a secular trend. It permanently displaced a share of cash and card transactions, and it kept growing through both strong and weak years for the wider economy, because the driver was changing consumer behaviour and infrastructure, not the business cycle.
Why NISM asks about it
Chapter 6.5 (Secular trends, value migration and business life cycle) and Chapter 6.3's definition of defensive industries both use the term. Expect a question distinguishing a secular trend from a cyclical one, or one naming a real driver (GST, shale technology) from the workbook's own examples.
Common exam traps
- A secular trend is not the same as a cyclical trend. A secular trend persists through economic upswings and downswings alike; a cyclical trend rises and falls with the economy itself.
Check yourself
1.Industries whose products have low income elasticity, so that a rise or fall in income does not significantly affect demand, are classified as:
- a)Deep cyclical industries
- b)Semi-cyclical industries
- c)Defensive industries
- d)Reinvention-stage industries
Show the answer
Answer: (c) Defensive industries
Defensive industries create products and services with low income elasticity, so economic cycles have minimal impact on them. The workbook names food, agricultural inputs and healthcare.
Option A is wrong: deep cyclicals such as capital goods and steel swing violently with the economic and commodity cycles. Option B is wrong: semi-cyclicals such as consumer durables do fall in a recession but retain a base level of demand. Option D is not a cyclicality category at all — reinvention and revival is the rare fifth stage of the business life cycle.
One nuance the exam likes: defensive does not mean immune. Their prospects are still affected by secular trends.
2.Indian call taxis grew rapidly through the 2000s and then shrank sharply once app-based aggregators arrived. Which two concepts does the workbook use this example to illustrate?
- a)Semi-cyclical behaviour and defensive positioning
- b)The full business life cycle, and value migration caused by a secular trend
- c)A BCG cash cow turning into a star
- d)Regulatory headwinds and taxation policy
Show the answer
Answer: (b) The full business life cycle, and value migration caused by a secular trend
The workbook uses call taxis as "one example of an industry that has gone through all the phases over a period" — pioneering at the turn of the century, growth aided by telephone penetration and rising consumer income, then decline once app-based aggregators emerged. That is the business life cycle.
The aggregators arriving is a technology-driven secular trend, and the workbook's general rule is that when a new secular trend emerges it causes value migration and often creates an inflection point in the business cycle of the affected industries.
Option A confuses cyclicality with the life cycle — cyclicality is about the economic cycle, while the life cycle is a one-way journey driven by adoption and technology. Option C misuses BCG, which classifies segments of a business by growth and cash generation, not the arc of an industry. Option D names factors the workbook does not attach to this example.
3.In a recession, orders at a steel maker and a capital goods company collapse as customers put capacity expansion on hold, while a consumer durables maker's sales dip but hold at a reasonably healthy base. At the first signs of recovery, the steel and capital goods orders surge. How does the workbook classify these industries?
- a)All three are semi-cyclical, since all three recovered
- b)Steel and capital goods are defensive, because their orders recover quickly; consumer durables are deep cyclical
- c)Consumer durables are deep cyclical and steel is semi-cyclical, because steel has a base level of demand
- d)Steel and capital goods are deep cyclical, with massive growth at the first signs of recovery as pent-up demand results in higher orders; consumer durables are semi-cyclical, with a base level of demand in recessions
Show the answer
Answer: (d) Steel and capital goods are deep cyclical, with massive growth at the first signs of recovery as pent-up demand results in higher orders; consumer durables are semi-cyclical, with a base level of demand in recessions
Section 6.3 gives three categories.
Deep cyclical industries "witness extreme cyclicality in their revenues as they are largely driven by economic cycle and/or commodity cycles. Capital goods industry or Steel exhibits such behavior." In recessions "their sales drop significantly as most companies put their capacity expansion plans on hold. However, these industries experience massive growth at the first signs of economic recovery as pent-up demand result in higher orders."
Semi-cyclical industries grow in expansion and decline in recession, "however, these industries do have some base level demand which help the industry to have reasonably healthy sales in recessionary conditions also. Consumer durables industry has exhibited these traits."
Defensive industries make products with low income elasticity, see minimal impact from economic cycles and are affected only by secular trends — food, agricultural inputs and healthcare.
Option A ignores the difference in how far each fell. Option B mislabels a collapse-and-surge pattern as defensive — defensive industries barely move with the cycle at all. Option C swaps the two labels.
Where this is taught
Free preparation for NISM Series XVRelated terms
- Attractive industryAn industry structure, under Porter's Five Forces, with low competition, high entry barriers and weak buyer or supplier power — letting its companies earn strong, durable margins.
- Business life cycleThe stages an industry passes through from emergence to decline — pioneering, growth, maturity, decline, and rarely reinvention — driven by the secular trends around it.
- Semi-cyclical industryAn industry whose sales grow in economic expansions and shrink in downturns, but never below a base level of demand — sitting between defensive and deep-cyclical industries.
- Value migrationLong-term shareholder value shifting from one entity to another — across geographies, industries, the value chain, or between rivals in the same industry — usually triggered by a secular trend.
- Defensive industryAn industry whose products have low income elasticity, so demand barely moves when incomes rise or fall — the workbook names food, agricultural inputs and healthcare.
- Deep cyclical industryAn industry whose revenues swing to extremes with the economic or commodity cycle — the workbook names capital goods and steel as its examples.