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  • Category: Stock Market

    Is industry analysis a must before investing?

    Want to know the importance of industry analysis? Interested in investing after this analysis? Here, on this Ask Expert page go through the advice provided to decide where to invest.

    Industry generally means homogenous group of firms that produce similar products to satisfy the needs of common set of buyers. Industry analysis is actually determining or evaluating the weakness and strengths of particular industries.

    Industry analysis is compulsory because it helps the investors to determine the stage of growth through the industry is passing. We know that industry life cycle is segregated into four stages that is pioneering stage, expansion stages, stagnation and decay stage. In the first stage industry exhibits only low profit and in the second stage high profit and the third stable profit and last profit will be declining .

    So only after analysing the stage of industry one should invest so do you agree?
  • Answers

    4 Answers found.
  • Analysing a particular industry is definitely beneficial for taking a decision by an investor to invest in that segment of business.

    At the same time within that industry it is also possible that some companies may be doing better than others and this is a very important aspect because in case of adverse market conditions only the good ones will survive from a long term prospective.

    So a shrewd investor will in general avoid industries having low upside potential but if he does so he will be doing it in select companies only.

    Knowledge is power.

  • Industry analysis is a very important tool to logically come to a conclusion whether our investments would reap benefits.There will be surprise winners and losers in terms of our choice or exclusion but by and large, it would give us a better chance of earning more or what we expect.

    Depending on the time horizon and the volume available for the investment we can analyse the Industrial sector and invest. For instance, if one wants to reap huge benefits, they would not invest in conventional IT industry because the industry has had its boom days and now is on a plateau or a downward trend purely in term of the rapidity of growth and profit margins.

    On the other hand, consider the car segment, government and public are environments conscious, the levels of pollution is force new rules being made on conventional cars, like extra taxes, fuel surcharge etc.But consider the electric car market, it has huge potential as it is an attractive option to all, so, if one were to invest now, he or she would do the industry analysis, check the companies that are directly or indirectly related to the electric car industry and invest in them.

    Cybersecurity and security of the digital vaults and cloud storage is a big business that will be used more and more as digitalisation process is well embraced by all. An industry analysis and investment in the appropriate firms would yield better returns than just blinding investing in what is the flavour of the month.

    A simple very basic model identifies the industry sector and the specific sub status, the past numbers, current supply-demand equation, future trends and potential critical competitors and market base.

  • For investment, various factors are required to be analysed. Some of these are macro-economics like overall economic condition of the world, economic condition of the country, weather forecast, agricultural production, industrial production, infrastructure of the country and in a particular area where the short-listed company is located. The investor would also try to understand the corporate tax structure, tax relief given to a particular sector, the performance of a particular sector and then various economic indices indicating the financial health of the company.

    So far as a particular sector is concerned, the past performance, tax relief, if any, given to the sector and future prospect are required to be analysed. For a company, the income, debt, dividend, Debt-Equity ratio, sales performance and future growth projection are required to be analysed for informed investing.

    But, very few investors at individual level can take note of innumerable factors involved in stock investment. So, the professionals and professionally-managed equity mutual funds come into picture. They do all these complex analysis for the investors by charging professional fees.

    Come on, have a fight. Don't shoot and scoot.

  • The investment arena always throws some ironies. Sometimes newbies who do not know anything about investment but do so blindly get god returns. At the same time many seasoned investors investing after doing much homework come to incur loss.
    That doe not mean that one should invest blindly. Analysis and and review gives us some insights about past and projections and expectation about future. A god analysis and study help us to have stability and to reduce loses i case such an event happens also.
    Industry analysis helps us to know how that particularly industry has performed, how it is performing in relation to other industry,how far some policy and parameter changes have affected it and what will be the trends in future. in short term and long term.
    Accordingly one can devise strategy in investing in that industry or even to avoid.

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