Industry Analysis: The number of people investing in the stock market is increasing rapidly. Although it is not that Indians are investing only in the domestic stock market, but now many investors of the country are investing their capital in it by choosing stocks from global markets as well. However, the most craze among Indian investors is about American stocks. In such a situation, it has become necessary for not only the fund manager but also the individuals to do industry analysis so that not only can their capital be saved from sinking but also better profits can be made on it. Through analysis, a better decision can be taken about when is the best time to invest.
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Industry analysis can be done in two ways
Before doing industrial analysis it is very important to know what is the macro-economic realty of that industry. Every industry has a business cycle and by understanding its basics, a smart move can be taken. According to Ashma Zaveri, COO, Monarch Global, there are generally two common methods of industry analysis, which include demand-supply dynamics, competition, future prospectus and technological changes.
- SWOT analysis: This is the most common tool for analyzing any industry. It assesses the strengths, weaknesses, opportunities and threats of the industry. How the industry is better than other industries, what are the decisions that will lead the industry and what will be the effect of technological change, let us study all these aspects. On the other hand, while assessing the weaknesses of the industry, let us see what is the level of debt and what kind of practices are going on in the market. Study the opportunities and causes of concern from external factors affecting the industry, which may affect the industry. For example, due to the long-standing corona epidemic, there is a threat situation for most industries, although government investment in infrastructure has also created new opportunities in the sector and related industries.
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- Porter’s Five Forces Model: It was designed by Michael Porter and through it analyzes the strengths and weaknesses of an industry. This proves helpful in understanding the competition within the industry itself. Under this model, the industry is analyzed through competition, prospects of new companies entering the industry, command of suppliers as well as customers and challenges posed by substitute products. For example, an industry where the entry of new players is very difficult, due to the presence of fewer companies, there will be better pricing power and there will be less competition in it. Apart from this, if the influence of suppliers in an industry is very high, then it will affect the input costs.
Undervalued companies will also get information
Through both these models, investors can analyze any industry involved in the economy, whether it is an Indian industry or a global one. Through these models, information can also be obtained of such companies in an industrial sector, which are undervalued, that is, their current market price is less than it should be. Knowing about such companies can earn better investment by investing in them for a long time. This is because these companies have very high growth potential and the return on capital invested is likely to increase accordingly.