Page 160 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 8: Fundamental Analysis 2: Industry Analysis

Defensive industries are those the products of which have relatively inelastic demand. Notes
Food processing industry is an example.

Cyclical growth industries are those that are greatly influenced by technological
and economic changes. The airline industry can be cited as an example.

8.2.2 Key Indicators in Analysis

The analyst is free to choose his or her own indicators for analyzing the prospects of an industry.
However, many commonly adopt the following indicators.

Performance factors like
Past sales

Past earnings
Environment factors like
Attitude of government
Labour conditions
Competitive conditions

Technological progress
Outcome factors like
Industry share prices

Price earnings multiples with reference to these key factors, evaluations shall be
done to identify.
Strengths and weaknesses

Opportunities and threats
Some relevant questions that may be asked in this connection are given here. They are only
illustrative and not exhaustive.
1. Are the sales of industry growing in relation to the growth in Gross National Product
(GNP)?
2. What is overall return on investment (ROI)?
3. What is the cost structure of the industry?

4. Is the industry in a stable position? Does the success or failure of the industry depend upon
any single critical factor?
5. What is the impact of taxation upon the industry?

6. Are there any statutory controls in matters of raw materials allotment, prices, distribution
etc? Are they protective or crippling?
7. What is the industrial relations scenario of the industry?

8. Is the industry highly competitive? Is it dominated by one or two major companies? Are
they Indian or foreign? Is there sufficient export potential? Are international prices
comparable to domestic prices?

9. Is the industry highly technology-based? At what pace technological advancements are
taking place?

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