The Complete Guide on Sector and Industry Analysis (Market Indices Analysis)

 If you are an investor and planning to invest in stocks, read this before proceeding.

Fundamental analysis is important part of stock research before making any decision about investment. Fundamental analysis includes sector analysis and industry analysis.

What is sector analysis and industry analysis? Is sector and industry different from each other?

Before we move to the definition of sector analysis and industry analysis, we shall understand the definition of sector and industry.

Sector is broader term than industry, sector is the group of industry which share common characteristics of business activities whereas industry is group of companies which are into similar business or products.

Let us understand with example: sectors are classified in four parts primary, secondary, tertiary and quaternary.  Primary sector includes activities related to environment or earth such as mining, fishing, agriculture, etc. and industry includes health industry, software industry, finance industry etc.

Industry and sector are two terms that are used in economy, there is misconception among individual that industry and sector are synonyms and can be used interchangeably but there is huge difference in both terms.

In stock market both sector and industry analysis are used by analyst to study the market.

Sector analysis is analysing the financial and economic position of particular sector of the economy. It helps investors in judgement on how companies in their sector can do so efficiently. It also helps to select some of the unprofitable parts.

Sectors perform differently in different stages of business cycle. For example, in the expansion phase researchers focus on discretionary sectors as its performance increases during this period, whereas when economy growth slows down it focuses on defensive sectors as they outperform when the economy is slow.

The pandemic has forced everyone to stay in home, which lead to increase in demand of retail sector the market has seen a 25% to 75% increase in order volumes as a result of the increased demand.

At this stage, the demand for health and hygiene products has also skyrocketed, as the focus is on these aspects. Demand for hygiene products such as disinfectants and sanitizers, as well as health care products that increase immunity has increased rapidly.

However, as the focus during lockdown was on food and sanitation, discretionary and non-essential items could be seen as weak in demand.

According to India Ratings and Research (IndRa), domestic organized food and grocery retailers can benefit from continued demand for organized distribution and e-commerce staples, with a 10% year-over-year increase in FY22.

After experiencing an unprecedented 19% decline in the January-March 2020 quarter, the consumer goods industry showed signs of recovery in the July-September 2020 quarter, with a year-on-year growth of 1.6%. The growth of the fast-moving consumer goods (FMCG) industry also reflects the enthusiasm shown in the overall macroeconomic situation in the context of economic opening and relaxation of lockdown restrictions.

Retail is one of the sectors hardest hit by the Covid19 pandemic. According to the Retailers Association of India (RAI), only 7-8% of the retail sector has returned to work after the shutdown selling only essential items.

Industry analysis is used to understand the industry's competitive dynamics, allowing them to gain insight into what is happening in the industry.

Industry analysis provides business entities or investors with the necessary information, which will help develop effective roadmaps. It can help owners understand the various opportunities and threats the business will face so that they can take steps to take advantage of the opportunities effectively.

In Financial Year 20, organized retail contributed approximately 11-12% of the total retail industry. This share is expected to grow to 16% over the next 5-6 years, with the organized retail market growing at a CAGR of 20%. Interestingly, over the past 5 years, the organized retail market has grown by 19%, increasing the penetration rate from 7% to about 11%.

Before making certain investment decisions, investors perform analysis to have comprehensive knowledge of the sector or industry in which they want to invest. Therefore, it is very important to analyse before making a decision. Because it helps us to assess the economic and financial prospects of an industry, a sector of the economy. By performing an analysis, it helps to identify areas where strategic changes will help maximize profits. It provides us with knowledge of untapped opportunities in the industry and economy.

A sector can have several industries under it, for example, a retail sector can have multiple industries like groceries, clothing, convenience, etc. Therefore, industry analysis will help to understand which industry within that sector is likely to perform better.

Industry and sector analysis help to assess company's future outlook and identify strategies that improve the efficiency of a particular sector, not just the industry. 

 It is a tool for developing competitive strategies that serve as the best defence for these potential candidates.

Sector and industry analysis is subjective and does not guarantee success. However, first understanding the sector and then determining the industry may not work well and you need to perform a bottom-up analysis that is, analyse the industry first, and then analyse the industry.

Analysis of sectors and industries allows investors to identify specific strengths and weaknesses of an organization.

Once you have opened Demat account perform sector analysis with the help of ticker where you can get the sector wise ratios for free and stocks of similar industry categorised under different strategies called bundles. These exclusive features of ticker are absolutely free.

So, start your investment journey because if you don’t succeed at first failure may be your style.