Industry Analysis: The framework

 When we start a new venture, we base it on hard research and analysis. Typically, we review the industry and put ourselves in our customer's shoes to see what we could do better. - Richard Branson 

This quote sums up the importance of industry research accurately and provides insights on how one can venture into new investments. Through this blog, I want to make sure to give my readers a structure that can be used to analyze any industry.

One might argue that why do we need to thoroughly analyze the industry qualitatively when we have the quantitative data and relationships in terms of ratios? Well to put it simply, the industry analysis helps to put those ratios (P/E, Profitability, Liquidity, etc.) into the perspective of that particular industry. This newly gained perspective helps the analysts to put forth a better forecast of the growth prospects of the industry and the companies within.

Before delving deep into the analysis structure that we were discussing initially, I would like to share the website that could help you all to gather the majority of the industry-specific information. Have a look at "https://www.ibef.org/"

The Analysis Framework

Let us now understand the elements of the above framework one by one.

Macro and Microeconomic analysis

Understanding the macroeconomic variables at play in the overall economy of the country and of the countries the Industry is dependent upon for raw materials is essential. Factors like unemployment rates, Inflation rates, Interest rates, GDP, Sanctions and embargos, Oil prices fluctuations, Currency prices fluctuations, etc

Microeconomic variables are equally important to determine the supply and demand of the output of the focal industry. The elasticity of the supply of raw materials and the presence of any complementary and substitute products. This also helps in ascertaining Porter's Five forces.

Latest Trends

Keeping a check on the latest technological changes in the industry is important to project the accurate growth figures for the industry as well as the company in focus. Many tech phenomena like cryptocurrency, blockchain, Artificial intelligence has helped the companies to bag higher valuations. 

Consumer trends are equally important too because these define how the industry gonna shape in the short term. For instance, the inclination of Millenials for solo traveling led to the evolution of the business model of companies like The Backpackers Co. Oyo, and Airbnb

Industry Overview

Refer to the website Indian brand and equity foundation to get the industry insights and reports from the governmental agencies. Under the various tabs on this website, you can get economic insights, latest trade data, and analyst reports. 

Source: Indian Brand and equity foundation

By reading these reports try to gather the information around the following:

1. How the industry operates (raw materials required, output processes, etc)?
2. what influences it internally (what kind of markets this industry cater to, through what kind of market the industry gets raw materials, etc)?
3. What influences it externally( What is the demographic of the customers, how big is the market, what is the untapped potential)?
4. What are the industry growth drivers (for instance, the growth driver for the automobile industry is cheaper crude oil prices, appreciating currency, etc)
5. Who are the major market players?
6. What are the effects of government regulations on the industry?

Once you answer these questions qualitatively (Use Value chain analysis, PESTLE) and quantitatively, you will not have any issues in understanding the nuances of any industry.

Industry News

Make a note of all the major events and news in the recent 2 years relevant to that industry. This will make sure you do not miss anything while projecting the future growth prospects of the industry and its participants(companies operating in that specific industry)

Once you complete gathering facts and figures on the above-mentioned attributes, you will be in a position to analyze the industry like a piece of cake!