Industry Sector Analysis & its Usefulness in Stock Market

Industry analysis always has been an important part of small business planning & strategic planning. But, truth is, it is not just limited to small businesses. Have you ever performed an industry sector analysis before investing in the stock market? if you didn’t then our opinion is: YOU MUST! In fact, that’s why we’re here to brief you on the importance of industry sector analysis to identify the right investment plan.

Here we will discuss the Industry Sector Analysis, its importance, and how to perform it in identifying the right investments for good financial returns.

So, without wasting any more time, let’s dig deep into it!

Industry Sector Analysis & its Importance

The “industry” is the name given to the group of companies or firms offering similar products and/or services. For example, if we talk about the major automobile industry, the leading companies are Toyota, General Motors, Maruti Suzuki, Honda, Volkswagen, and Ford all of which manufacture the same products.

The term used to refer these groups of related industries is called “Sector”. For example, the healthcare sector consists of following related industries including Pharmaceutical, Medical Supply, Biotechnology, and Hospital & Managed care industries.

Now come to the industry sector analysis. As you can see a company’s performance depends on a lot of things �" manufacturing costs, production, operations, management, business model, economic & business variables, and demand & supply among others. So, the person who is invested in it and the return he/she will be getting depends on all of these things.

Thus, it is important to analyse the company’s performance and studies its statistical relationships between industry trends and develop a strategic reliable forecast. This helps in estimating how much profit they can make in the sector they invested in.

Thus, stock market investors need to examine the industry performance while comparing with other industries, to identify the industry with inferior and superior returns and degree of consistency and the risks in the returns associated with the respective industries.

After all, when you buy stock of some company, it is not just some documents you own but you will be a shareholder of that company. After investing in the company, your financial returns will depend upon the company performance. If the stock prices rise, you will get fruitful results in terms of market returns but if the stock prices fall, you may lose your invested money.

And like we discussed, the company’s performance depends upon a lot of reasons. Thus, it is important to keep an eye on financial and economic indicators like core retail sales, non-core retail sales, industrial production, and gross domestic product (GDP).

“Interest rate decisions” is another important economic indicator which tells a lot about the health of the economy, future inflation, and the direction of the stock market. To get the latest updates on the economic indicators you can check for the economic calendar on a regular basis which will give all crucial information on global financial and economic events.

In order to do the competitive analysis of a company you are going to invest in, you can use Porter’s five forces industry analysis which will notify you in understanding a company’s business and business environment and identify equity investment opportunities.