Page 170 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 8: Fundamental Analysis 2: Industry Analysis

8.5 Summary Notes

 After conducting analysis of the economy and identifying the direction, it is likely to take
in the short intermediate and long-term; the analyst must look into various sectors of the
economy in terms of various industries.
 An industry is a homogenous group of companies. That is, companies with the similar
characteristics can be divided in to one industrial group.
 There are many bases on which grouping of companies can be done.
 The securities analyst will take into consideration the following factors into account in
assessing the industry potential in making investments.
 Post-sales and earnings performance, the government’s attitude towards industry, labour
conditions and competitive conditions are the various factors that are to be taken into
account while conducting industry analysis.
 End Use and Regression Analysis is the process whereby the analyst or investor attempts
to dial the factor that determines the demand for the output of the industry. This is also
known as end-use demand analysis.

8.6 Keywords

Cycle (C): It captures the wave-like movement of sales. Many sales are affected by swings in
general economic activity, which tends to be somewhat periodic. The cyclical component can be
useful in intermediate range forecasting.
Cyclical Growth Industries: These industries are greatly influenced by technological and
economic changes. The airline industry can be cited as an example.

Cyclical Industries: These industries are closely related to business cycles. Prosperity provides
consumers purchasing power and boom to industry whereas depression adversely affects them.
Consumer durables are subject to these kinds of changes.

Defensive Industries: Defensive industries are those the products of which have relatively inelastic
demand. Food processing industry is an example.
End Use and Regression Analysis: It is the process whereby the analyst or investor attempts to
dial the factor that determines the demand for the output of the industry. This is also known as
end-use demand analysis.
Erratic Events (E): It refers to the unpredictable sales caused by unforeseen events like strikes,
riots, war scares, floods, and other disturbances.

Season (S): It refers to a consistent pattern of sales movements within the year. The term season
describes any recurrent sales pattern. The seasonal component may be related to weather factors,
holidays, and trade customs. The seasonal pattern provides a norm for forecasting short-range
sales.
Trend (T): It is the result of basic developments in population, capital formation, and technology.
It is found by fitting a straight or curved line through past sales.

8.7 Review Questions

1. Why does portfolio manager do the industry analysis?
2. What are the factors influencing industry analysis?

LOVELY PROFESSIONAL UNIVERSITY 165