- Upstream Downstream Oil Companies in India
- How to Do a Valuation Analysis of a Company
- ITC Group History: Early Years, Companies Details & Future Outlook
- Types of FMCG Sector & Top Companies in India
- What is L&T Finance Rights Issue: Price, Meaning, Strategies & How to Apply
- Best Life Insurance Policy Plans In India 2023
- Top Renewable Energy Stocks in India 2023
- List of Best Gold Stocks to Buy Now in India
- List of Best Mid Cap Stocks to Buy Now in India
- List of Best Pharma Stocks to Buy Now in India
- Best Green Hydrogen Stocks to Buy Now in India
- List of Best IT Stocks to Buy Now in India
- List of Best Small Cap Stocks to Buy in India
- Top Life Insurance Companies in India 2023
- Best Defence Stocks List to Buy in India 2023
- Best Blue Chip Stocks in India 2023 To Buy
- Best Books on Stock Market Investment for Beginners in India
- Best Fertiliser Stocks List in India to Buy Today
- Best Cement Stocks Companies List in India
- Best Artificial Intelligence Stocks Companies in India
- List of Best Highest Dividend Paying Stocks Companies in India
- Best Chemical Stocks List in India
- Best Investment Plan for Monthly Income in India
- How to Invest & Buy in US Stocks Markets from India
- Top 5 Most Expensive Shares/Stocks in the World
- Best Stocks Under 20 Rs to Buy in India
- Best & Top EV (Electric Vehicle) Stocks to Buy in India
- Top 20 FMCG Stocks in India 2023
- Best Stocks Companies to Invest in India & How to invest
- What is Fiscal Deficit of India & How to Calculate: Meaning & Formula
- What is Market Value & How to Calculate: Shares, Meaning, Formula, & Ratio
- What are Non Operating Expenses & How to Calculate: Examples, Meaning, & Formula
- What is Liquidity: Meaning, Fund, Risk, Stock market, & Examples
- What is Good Enterprise Value & How to Calculate: Formula & Meaning
- What is Shareholders Equity & How to Calculate: Formula & Meaning
- What is Dividend Payout Ratio & How to Calculate: Formula, Meaning, & Examples
- What is an Operating Profit & How to Calculate: Formula, Margin, Ratio, & Meaning
- What is Trade Receivables Turnover Ratio & How to Calculate: Formula
- Deferred Tax Liability & How to Calculate: Meaning, Example, & Formula
- What is Redeemable Debentures & How it Works: Meaning, Formula, & Example
- What is Dividend Per Share & How to Calculate in India: Formula & Example
- What is Gross Working Capital & How to Calculate: Formula & Meaning
- What is Net Working Capital & How to Calculate: Formula, Meaning, & Ratio
- What is the Difference Between Gross Profit and Net Profit: Example
- What is Discounted Cash Flow & How to Calculate: Method, Formula, & Valuation
- What is the Difference Between Shares and Debentures: Explain
- What is Deferred Tax and How to Calculate: Calculation, Meaning, & Example
- What is Capital Asset Pricing Model: Assumptions, Formula, Explained, & Meaning
- Shareholder (Stockholders): Meaning, Equity, Rights, & Types
- What is a Good Price to Book Ratio & How to Calculate: Meaning & Formula
- What is Difference Between Equity Shareholders and Preference Shareholders
- What is Ebitda Margin & How to Calculate: Meaning & Formula
- What are Treasury Bills in India & How to Buy/Invest: Meaning & Interest Rates
- What are Dividend Stocks in India & How to Buy Highest-Paying Dividend Stocks
- What are Preference Shares & How to Buy: Meaning, Types, Redemption, & Features
- What is Venture Capital in India: Meaning, Features, Types, & Process
- What is Cash Reserve Ratio in India: Meaning, Current Rate & Formula
- What is the Difference Between Assets & Liabilities: Meaning & Types
- What is Revenue Expenditures in India: Meaning, Examples, & Types
- What is Equity Share Capital & How to Calculate: Meaning, Formula & Types
- What is Capital Expenditure CapEx and How to Calculate: Meaning, Examples, and Formula
- What is Statutory Liquidity Ratio in India & How to Calculate: Meaning & Formula
- What is Good Current Ratio & How to Calculate: Meaning, Formula, & Example
- What is Intrinsic Value of a Share/Stock and How to Calculate: Meaning and Formula
- What is Booking Value in Share/Stock Market & How to Calculate: Meaning & Formula
- What is Funds Flow Statement & How to Prepare: Meaning, Objectives, & Examples
- What is Quick Ratio and How to Calculate: Meaning, Formula, and Example
- What is a Hammer Candlestick Pattern: Meaning, Formula, & Strategy
- What are the Current Liabilities and How to Calculate: Meaning, Examples, & Formula
- What are Current Assets: Meaning, Examples, and How to Calculate
- What are Non Current Assets: Meaning, Examples and How to Calculate
- What is Liquidity Ratio: Meaning, Formula and How to Calculate
- Net Interest Income
- Capital Gains Tax
- Long Term Capital Gain Tax
- Short Term Capital Gains Tax
- Capital Gains Tax on Property
- Short Term Capital gain Tax on shares
- Difference Between Capital Expenditure and Revenue Expenditure
- Churn Rates
- Return On Assets
- Free Cash Flow
- Fiscal Policy
- What is the Poison Pill Strategy
- Purchasing Power Parity
- Trade Deficit
- Foreign Direct Investments (FDI)
- Bonus Issue of Shares
- Long Term Capital Gain Taxes On Shares
- Redemption of Debentures
- Angel Investor
- Short-Term Capital Gain on Shares
- Government Bonds
- Equity Shares
- Stock Exchange
- Breakeven Point
- Capital Gain Bonds
- Cost Inflation Index
- Capital Gain Index
- Everything You Need to Know About Growth Stocks
- Capital Gains Exemptions: Everything You Need to Know
- Capital Gains on Equity Shares: Types, Calculation, Tax Rates and More
- Long-Term Capital Gain on Shares: Everything You Need to Know
- Non-Performing Assets: All You Need to Know
- ESOP - Employee Stock Ownership Plan
- What are Penny Stocks in India
- What is Multibagger Stocks & How to Find Multibagger Stocks
- What is BO ID in Share Market
- Know All About Online Share Market Trading
- Stock Market Trading: Types Of Trading and Its History
- Difference Between Stock Market and Commodity Market
- What is Online Stock Trading In India For Beginners
- What Is Pre Open Market Stock Trading - Meaning & Benefits
- Relative strength index (RSI)
- Understanding Candlesticks
- Important Chart Types
- Support and resistance
- Types of Trends
- Bollinger Bands
- Qualities of a super trader
- Risk Management
- Moving averages
- Volume indicator
- Breakouts & Breakdowns
- Identifying trends
- Supertrend indicator
- Contingent liabilities
- Volume, realisation, and revenues explained
- Understanding debt
- Exceptional Items
- PE Ratio
- Outstanding Share Capital
- Book value
- Share Buyback
- Stock Splits
- Understanding Rights Issue
- Bonus Shares
- Technical Analysis
- Various types of Market Participants
- The Basics of Stock Market Analysis
- What is Sensex and Nifty?
- What Is The Stock Market?
- Basics of Investment
- Asset Allocation
- How to Analyze a Balance Sheet?
- Industry Analysis
- Ratio Analysis
- What is a circuit breaker?
- Benefits of equity investment
- Share market investment tips
- How does the stock market work?
- Stock market guide for beginners
- What are the types of share trading orders?
- Risk management while investing in the share market
- What is share market?
- What is NSE and BSE?
- What is an IPO in the share market?
- Show all articles
Packed with lots of interesting examples, this video covers answers to questions like ‘What is Industry Analysis?; ‘Why is it important? What is the best approach to follow while doing so?’ and more. It also covers all the key aspects to consider while analysing any given industry before making investment decisions.
Welcome to our new series- Learn with Upstox. In this series we will discuss ratio analysis, industry analysis, balance sheet analysis and many other topics like these.
In this article, we will discuss Industrial Analysis. We will also discuss the various parameters required to do these analyses as well as Porter’s Five Forces Model.
We have all experienced how shortlisting things for even a simple holiday requires a lot of analyses. It only makes sense then that choosing one company from the many many listed will also involve a similar, if not more of a vigorous, analyses. That is exactly what we do in Fundamental Analysis.
Fundamental Analysis is an analysing technique which uses two approaches - the Top Down approach and the Bottom Up approach.
Let’s start with understanding what these terms mean:
- The Top Down Approach: This approach focuses on Economy analysis, Industry analysis and then the Company analysis.
- The Bottom Up Approach: This approach is exactly opposite to the Top Down Approach. In this, the focus is first on Company analysis, then the Industry analysis and then the Economy analysis.
But what exactly are we going to discuss here? In this article, we are going to learn how to analyse an industry.
How to analyse an industry?
There are many points that we need to look for while conducting an analysis. But we will keep it simple and look at all these points one by one.
The first one focuses on the government's attitude towards the industry. This includes the reliefs, rebates, tax structures, FDI details etc and many such things. Let’s take an example.
Assume that for a specific industry, in the last 20 years, there was a $1000 billion FDI inflow, which was received in the country. Let’s compare this with the last five years and assume that in the last five years, there was an FDI inflow of $500 billion. Now, if we compare $500 billion in the last five years and the $1000 billion from the last 20 years, we can easily analyze that in the last five years, that specific pickup rate of the FDI has been very high. Is that a positive trend? The answer is absolutely, yes.
Now that we understand the government's attitude or initiatives, let's move on to the second point.
In the second point, we try to analyze the size of the market. Like the total addressable market, the market share, the global industry size, the industry share to the GDP and more points like these.
Cement Industry in India
Let’s take an example of the cement industry. After China, India is the second largest producer of cement in the world. The world had 2400 million tonnes of production in the latest financial year of 2020. This tells us that 2400 million tonnes is the total share of this industry. For India, the cement production reached 329 million tonnes in the financial year 2020 and is projected to reach 381 million tonnes by the financial year 2022. Remember, we talked about the size of the industry? If the total production is going to increase at such a nice pace, then the total size of the industry will also grow. That's how we can analyze the size of the industry.
One more example can be India's overall cement production capacity was nearly 545 million tonnes in FY 2020 and accounted for over 8% of the global installed capacity in FY 2020. This helps us understand what India's total capacity is in comparison with the global scenario.
Now, let's move on with the third point.
Understanding the market trends and demography of the country
This point seeks to answer the following questions: How is the customer behaviour? What are the market trends? How is the demography of the country? What is the median age of Indians? What is the percentage of working women in the country? What are the preferences of people?
Again, Let’s take a simple example.
Right now in India, the median age of Indians is around 27/28. Which means that
- The percentage of people who want to eat out is increasing
- The percentage of working women is increasing and
- The percentage of urbanization is also growing very fast.
If we take all these points into consideration, we can imagine quite a few industries which will be positively impacted because of this. It's very easy to analyze this. The impact on the ready to eat category of industry will be positive. When women are going to work for 8 to 10 hours, the possibility of people going for ready to eat foods is going to be more. In fact, the QSR industry will also be positively impacted.
Now what is QSR?
QSR is like a quick service restaurant category of industry. Best examples of these are McDonald's and Domino's Pizza.
Let's start with the Porter's Five Forces Model now.
Porter's Five Forces
This is one of the most famous models for industry analysis. Let's take all the five points one by one in detail.
First: Threats of New Entrants.
What do we mean by this? It means that we need to analyse if there is an easy entry inside this industry. Let’s take a simple example. In the case of a capital intensive industry, which requires a lot of capital, we see that it won’t be an easy entry. There will be a lot of entry barriers, and so the threat of having many competitors is comparatively lower. Which means that it's a good thing for the existing players in the industry.
Second: Buying Power of the Customers.
Some industries are cyclical in nature, which means that these industries will perform well, when the overall position like the GDP position of the country is good, and they'll perform bad when the GDP is bad. Like the automobile industry which performs well when the buying power of the customers is really nice, but if the buying power of customers itself is less then the automobile industry is not going to pick up. Then there are some industries which are not cyclical in nature like the pharma industry, because people will buy medicines irrespective of their buying power.
Third: The Supplier Power.
It is profitable for a company to have a huge availability of suppliers. Because if the number of suppliers is limited then it gives them the power position, and it affects the company’s profitability.
Fourth: Threat of Substitutes.
If the substitution is easy, it can weaken your position and affect your profitability.
Fifth: Industry Competitors.
If the competition is intense, the industry will have a hard time posting good profits. Take the example of airline companies. Do you remember when there were so many airlines like Jet, Vistara, Spicejet etc. So many airlines were competing for a maximum chunk of customers which reduced the profitability. The same can be said about the telecom companies. Hence, if the competition in an industry is cut throat, it will never be profitable for the industries.
So, that’s all for this article. We hope that you found it useful. If you want to read up on more of such topics, feel free to surf through the website. You can also check out our YouTube channel for the same.