The industry analysis report sheds light on the economic health of the company, underlining the understanding whether it will be beneficial for the stakeholders to invest in such a company and offering recommendations and/or corrective actions to take in case of any untoward developments in the company.

As an equity research analyst, you might work on industries like Oil and Gas, Metal, Information Technology, Automobile, Financial Services, Infrastructure, Pharmaceuticals and Consumer durables.

In some companies, there is a dedicated industry analyst who will work on the assigned industry and provide the analysis.

However, as an analyst you should be aware of industry dynamics and hence, it is important to know how to do industry analysis.

An industry analysis is a complicated and time consuming process. If any of the dimensions are missed, the whole analysis becomes faulty. Therefore, in this section, I have highlighted all the necessary steps telling you how to do industry analysis. Use these steps and apply it in your analysis.

What are the steps? Here you go:

Read all the available but relevant industry reports and statistics to see whether it makes sense to dig deeper.

Some of the reports you will find already contain in-depth information that the need for new industry analysis is eliminated.

However, it is unwise to depend on existing industry analysis reports as the market is always volatile and industry factors change constantly.

Therefore, pick up a current report and envisage its relevancy in the current market.

An industry has sub-parts. For example, if you look at the chemical industry, you will find sub-industries like Fertilizers, Pesticides, Paints and Varnishes, Organic chemicals.

Therefore, it is important to focus on the relevant industry. Without this, it will be impossible to draw an accurate industry analysis report. So, take up an industry and find out the sub-industries. Select the one which suits the company’s purpose. Moreover, it is worthwhile to look at the different market segments in a particular industry.

As any economist will know, demand and supply are the primary factors governing any market. Hence, it becomes relevant to look into the demand-supply scenario for a particular product or industry by studying its past trends and forecasting future outlook.

You can do comparative analysis with other companyies competing in the same manner to find out the economic health of the company under consideration.

Future demand and supply forecasting helps investors understand the viability of future investments in terms of profits and losses.

This is the most important step of any industry analysis. In this, you need to study the competitive scenario using Porter’s Five Forces Model.

The model acts as the framework of industry analysis. Michael Porter, a famous strategist and author, first came up with this model. In this model, five parameters are analyzed to see the competitive landscape.

They are:

The Porter’s model is extensively used while analyzing any industry.

Any industry analysis report isn’t just about studying the particular industry on a micro-level.

The analyst needs to incorporate influencing factors at the macro-level. These macro-level factors include recent industrial developments, innovation in your industry analysis report, sector valuations and global comparative valuation.

The industry analysis should be specific to a particular industry and thus, it is important to focus and understand the industry dynamics. Your industry analysis should be in-depth and to-the-point.

For example, if you are tracking the aluminum industry, you should know the per capita consumption in the country.

In India, the per capita consumption of aluminum is 1 Kg, in USA, it is 25 to 30 Kgs, in Japan, it is 15 Kgs and in Taiwan, it is 10 Kgs. Apart from the consumption, you should also know the production of aluminum worldwide.

The above six steps are important and you, as an analyst, should follow them.

The analysts in private equity, investments banks, equity research firms, investment research firms need this skill and if you know how to do industry analysis, you are ahead of 80% of the aspirants as this will not only impress your interviewer, but also add immense value to you and the company hiring you.

In the last section, we learned how to do industry analysis and in this, we will see how to write one.

Writing is also a required skill as you need to present all the findings within a written report in a concise and clear manner.

Begin by writing a concise overview of the industry.

Mention historical data and the nature of the industry, including its growth potential.

State the influencing economical factors and most importantly, don’t forget mentioning the purpose of your industry analysis.

The concise overview of the industry should include its competitors and their operations.

You can write this in the next section. Write about similar products and services.

Now, with the overview aside, move on the detailed analytical presentation of the specific industry.

Highlight factors like geographical growth, consumer base, price fluctuations, past performances and income projections.

Use existing financial data and industry understanding to forecast industry growth for the next five or ten years. You can use statistical graph in this section.

The next sections should be about using Porter’s Five Forces model and a detailed write-up about its five factors, its use and repercussions in the industry. Don’t forget mentioning governmental regulations relevant to the industry.

Lastly, give long-term and short-term valuations impacting the industry such as any foreseeable problems impacting the business in a negative fashion and potential corrective measures. Wind up the industry analysis report with a very three or four line summarization.

Have you ever thought of learning the skill of industry analysis and want to know how to write an industry report?

Share your thoughts and experience here.

Considering oneself to be in the shoes of an Investor, for instance, it is obvious to face the dilemma of choosing the right stock that are easy to predict and forecast so it can meet your investment objectives and generate good contribution. The question arises as to how would you make the choice from among thousands of companies?

The quickest ways being relying on the consensus view initially and studying the past trends of the company. Consensus estimates of leading analysts are readily available on major financial blogs and websites.

Many would argue that these are the best ways to choose the right stock for forecasting while many would be against it.

My opinion says that relying on the past or the people are not the worst decisions especially for an investor seeking forecast closer to the current time period (this year or the next year).

It may not be suitable for longer period estimates because past analysis involves various adjustments against sales and hence growth rates calculated might vary from period to period.

Also, the choice of method to calculate the growth rate can influence the calculations, for example, geometric average, arithmetic average or complex techniques like time-series model.

Similarly, consensus though is better informed if there are more number of analysts in the market, however, a large number of analysts influencing the consensus can also lead to the ‘Risk of Herding’.

Analysts usually base their forecasts on the guidance from the company’s management, and the management follows the practice of under-estimating so as to beat the consensus and witness a rise in stock price, than to miss estimates and witness a price decline. So in a way following the consensus is not a wise decision for longer period forecasts.

Moving away from the consensus or the past trends, another investment barometer would be to use metrics and reasonably calculate the probable earnings for long-term forecasting. For this, it is required to gather factual data and applying analytical tools based upon your earning driven rationale. Also, as an analyst, you should understand that forecasts act as a guide and can only fall within a reasonable range of precision. Hence, it is advised to always calculate optimistic, moderate as well as pessimistic estimates.

Well, coming back to the point of predicting the earnings. I would like to give you a real-life example of two Indian-listed companies, Titan Industries, and Unitech Ltd.

What is the earnings figure we are considering here? It is Earnings Per Share or EPS.

Let’s look at the following table and see which company’s EPS is easy to predict.

Which one do you think is easy to predict?

Company Earnings Estimates

You are right!  It is Titan Industries which is giving strong EPS and that too in upward trend. No doubt, the share price reached Rs. 4000 in 2010 from Rs.40 in 2001 (100times growth).

What propelled this growth? Many factors. More on this, later.

The point I want to make here is, go for companies that are easy to predict and then do the forecasting. There is no dearth of such companies in the market and as a security analyst, your job is to find such gems.

Having seen how one should go for companies with steadily growing EPS, it is important to know that you can conjugate the concept of Stock Charts with P/E Ratios to estimate the earnings of a company.

A Stock Chart shows the graphical mapping of stock prices over a defined period, say for a quarter or a year.

Let us assume a stock of which you want to know the estimated earnings for the last quarter (Q4). The stock chart depicts stock prices of Rs.400, Rs.450, and Rs.600 for Q1, Q2 and Q3 respectively and it seems that the price is moving to Rs.750 in Q4.

Past data shows the following Price Earnings:

Averaging out the P/E of last three-quarters.

Average P/E = (40 + 32.5 + 17.5) times / 3

= 30(times).

The maximum limit (since prices are showing an increasing trend) for Earnings per share in Q4 will be:

EPS in Q4    = Estimated stock price in Q4 / Average Price Earnings

=  Rs.750 / 30(times)

=  Rs.25

Professors in the field of forecasting company earnings often have conflicting views regarding whether or not the company’s operating details impact its future ability to earn. In support of

In support of sustainable growth, I would highlight how Reinvestment and quality of re-investment result in the future growth of earnings.

Expected growth in Earnings per share can be viewed as a function of the following:

Re-investment Rate * Projected Return on Equity

(Re-investment Rate means the proportion of after-tax operating income that is retained and re-invested into new assets for future growth.)

Assuming a Re-investment Rate of 25% and projected Return on Equity of 30%, one can expect growth in EPS of 7.5%.

This way of estimating earnings based upon growth rate not only highlights that growth is not costless, but also defines the difference between growth that creates value vs. Growth that destroys value.

The very simple way to predict a company earnings apart from financial fundamentals like EPS, Current Ration, Growth ratio, etc. we can also look forwards to other areas through which we can predict the earning of the company that could be the external business factor that effects the earnings of the company indirectly.

Local government support in building infrastructure – the more is the focus of the government in promoting the industry and building the infrastructure you are to be rest assured that it is going to give a good earning to the company since the cost of manufacturing will be reduced because of the support of infrastructure facilities like electricity, water, ports, highways, dams, etc. With the reduction in cost of production, your earnings are sure to go high.

Future tenders or contracts received by the company – Another important aspect of predicting a company earnings is by analyzing the tenders and contracts which the company is due to execute in future, through which one can predict the earnings of the company, further if there is any foreign exchange contract then the fluctuation in currency can also be analyzed to predict the earnings of the company.

Analyzing the investment of companies in other company – Many a time companies tend to park few of their funds with other companies, you can analyze and find out the financial and growth of those companies to predict the earnings in the form of capital gain for the investee company.  

To conclude, what ever be the process chosen to estimate the earnings of the company it is futuristic and the probability of achieving the future earning prediction cannot be 100%, analyst always try to figure out how to reduce the gap and try to reach the 100% probability and keep on finding / developing new ways to predict the earnings. But one thing is for sure since the future is not ascertained neither can be the earnings of the company we can always forecast based on the past happenings and future possibilities.

I lost all my savings in the stock market scam of 1992.

Do I hear other murmurs?

"I lost all my savings in the panic that ensued after the nuclear tests in 1998."

"I lost all my savings when CRB Capital markets shut down."

"I lost all my savings in the new economy meltdown of 2000.”

Or if you want something current then try -

“My savings evaporated in the market mayhem caused by the global financial meltdown of 2008.”

Make no mistake, these are painful statements. All through our lives, we have been repeatedly advised that we must save money for a rainy day. And when we did just that, some of us suffered the misfortune of losing it all.

A penny saved...

...is a penny earned is what I was told by my favourite English teacher in middle school. Unfortunately, that penny doesn't get us very far anymore. Nobody told me about the silent enemy called inflation that could lay waste to the coin that the tooth fairy left under my pillow. Incidentally, I was also taught how to calculate interest by an excellent but stern mathematics teacher. But at that point I did not comprehend that interest was my best weapon against that stealthy enemy called inflation.

Realisation dawns

In high school I was introduced to the dismal science of economics and the world of basic finance. That’s when it all fell in place, the way to safeguard my savings from inflation was to put it in the bank or invest it somewhere. So that I could earn a rate of interest higher than inflation and protect my money.

Life rolled on

I entered the workplace at the age of 22. The saving habit came naturally to me. What with all those sayings ringing in my head, a penny saved...

I was determined. I wasn't going to let that sneaky character inflation get at my savings. No simple bank deposits for me. I was going to beat the hell out of inflation by investing my savings profitably in the stock market. In fact, I would beat the rate of inflation by a wide margin. I was too cool for my own good. And with impeccable timing, I caught the concluding part of the great Harshad Mehta orchestrated boom (caught in the Bulls' tail). But I caught the full impact of the downdraught that followed the famous boom. The rest is history.

Some more...

My financial situation, or shall I say penury, as a result of that debacle taught me some more lessons that none of my English, mathematics or economics textbooks had. A new host of aphorisms pored forth: No free lunch, no pain, no gain...

You see, it is true that you must save for the rainy day. But what follows as a natural corollary is that to protect your savings against inflation you must invest the same in some asset that will earn you returns. Be they shares, debentures, bonds, gold or even real estate.

And therein lies the crux of the issue. All these investment options have been associated with rags to riches as well as riches to rags stories. So investing is a risky business. The higher the return you expect from your investment, the higher the risk you will have to take. Your savings are not savings anymore. When you decide to invest your savings you are crossing the Rubicon threshold. Your savings have now taken the form of risk capital.

Risk capital?

Yes, because that is what it is. Don't panic at the thought. You could put your money in a government bond or in a national savings certificate and that would qualify as almost a zero risk investment. (Actually it is just the lowest risk investment available to you, but that's the topic of another debate). At the other end of the spectrum you have equities, which come with a high degree of risk. So do gold and real estate. But we'll discuss that some other time.

It's time to step back and spell out what we have learnt

The take home from all of this is that the Rubicon must be crossed. This is not a Catch-22 situation. Yes, you must invest to protect your savings from inflation but that investment need not necessarily place your financial future at jeopardy. There are several low-risk investments in the market place. You can structure your investments based on your appetite for risk.

Words of wisdom

I am now wiser. Wise enough to encapsulate all of this into my own saying.

“It is not how much you save but where you invest it that counts” –-Sharekhan, circa 2000.

By the time you get to this point in the write-up, you may be feeling just a wee bit nervous about your savings. Nay, investments. Please do not. At the end of the day, investing your savings is like falling in love. It can be risky and it can hurt, but that doesn't stop us from falling in love, does it? For the heady and glorious experience...

The old adage, “It’s better to have loved and lost than never to have loved at all” may assume a new meaning for you as you turn investor.

Unless you're in a witness protection program, it's worth it to sign up for loyalty programs from merchants you frequent.



Even if you’re rich, wasting money is criminally stupid. Sit down for a minute and think of all the things you could do with the money you waste that would otherwise make life better for someone else. If that doesn’t grab you, then think of what you could do with the money that would make life better for your own future self. Oh, yes, lovely and young as you are today, you are going to have a future self who might very well wish he or she had more money in the bank.

If even that isn’t enough to make you reconsider your ways, think of how hard you worked to earn that money (trust fund babies may leave the room now), and then picture yourself doing that work for free because what you’re essentially doing is throwing hours’ or weeks’ worth of salary right into the trash. Really. Picture yourself putting cash money into a trash bag, and watching it being driven off down the street in a garbage truck. Insane, right?

However, you may not realize how much money you re actually wasting. Here’s five signs you need to curb your spending before you send more cash to the dump:

1. You Buy New Stuff Just Because It’s New

You’re the guy in line at 2 a.m. on the day the new iPhone is being released. But guess what? There’s always going to be a new iPhone coming out. And a fancy new fill-in-the-blank. Commerce is what makes the world go ’round. If companies stopped creating new versions of things to sell, they’d go out of business. However, it doesn’t mean you have to buy into the super-hype and rush to get everything the minute it hits the shelf.

It’s not just electronics. The new car smell is still hanging in the air and you’re at the dealership again looking at next year’s models? Cars depreciate 11% the minute you drive them off the lot, and lose 19% of their value in the first year. You don’t get your money’s worth out of a car until you’ve driven for a while.

2. You Sale Shop for Things You Don’t Need

It’s Black Friday, Cyber Monday, Super Saturday, or Free Shipping Day, and you’re right out there among the rest of them. Fighting your way through the crowds — real or virtual — to get your hands on stuff you never knew you wanted. You hate to miss one of your local department or computer store’s special sales (nearly every weekend), and you never pass up two-for-one coupons for things you don’t even need one of. “But look how much I’m saving!” you say. But look how much you’re saving if you keep your wallet in your pocket.

What’s that you say? You only shop at discount stores, dollar stores, and places with Barn, Depot or Warehouse in their names? Look how much I’m saving! Yep, you’re saving what it would have cost if you’d bought the same things at high-end establishments. But if you don’t need them, then you’re not saving a cent no matter what you paid for them. Plus you’ve got to figure out where to put everything when you get it home. You want to wind up living like someone on Hoarders?

3. You Pay Fees to Use a Credit Card or Checking Account

You’re handing over money to a credit card company so that you can pay interest on the money you owe them? What a deal! There are a few exceptions when the program rewards will more than pay the fee, but generally, paying an annual credit card fee is dumb. There are plenty of credit cards with no annual fee. Get one.

The same applies to having accounts at a bank that charges a monthly checking account fee or a fee to visit a teller instead of an ATM. Do some research and find a bank that will accommodate you with no fees for a minimum deposit you can live with.

4. You Don’t Use Loyalty Cards at the Stores You Shop at Regularly

Rail as you might at the insidiousness of grocery and other stores that extract personal information from you and track your purchases in exchange for giving you discounts, if you regularly shop at a store that offers special pricing to customers in its loyalty program and you don’t take advantage of it, you’re over-spending at that store by 20% or more every time you shop there. Unless you’re in a witness protection program, it’s absolutely worth the savings to give your local supermarket your address and phone number and let them keep tabs on the brand of butter you buy.

5. You Eat Out More Often Than You Eat at Home

If your breakfast comes in a Styrofoam container, your lunch is delivered in a plastic box, and you’re choosing dinner from a menu, you’re spending way more than you have to. You can’t help it if you’re on the road, but otherwise, you can eat as well or better at home for a lot less money, even if you barely cook at all. Tax and tip alone add about 25% to the price you’d pay if you bought the food yourself and just nuked it. If you actually know how to cook, there’s sort of no excuse.

Rajiv Jamkhedkar
Serengeti Ventures

Have you ever wondered what it is about people who have security and peace about their money and wealth?

I know of a big factory-owner, worth over Rs 100 crores, yet does not have peace of mind about his money. The reason - his entire life is built around his factory, his business. When his business does well, he is happy. If bad times reduce his cash-profits, he becomes insecure.

Rich people know the secret to wealth and peace of mind - and that is - having many cash-streams coming into their lives (and accounts!) instead of just one. One cash flow - say a salary or profit from a business - will not provide security in all times. On the other hand, multiple cash-flows provides stability and security. In case one cash-flow vanishes or reduces, the other one gives you comfort and sustenance.

At this point you may ask: “I am an ordinary middle-class worker. How can I do multiple jobs to create multiple cash-flows?” Let us examine the types of second and third income that you can create:

1. Spouse income - If the husband/wife is also earning, it acts as a buffer for both of them. In today’s economic environment, job security is a thing of the past. Having the spouse earn is a big positive. This second income can be used towards the burden of household expenses, towards investing for the future, and as a back-up to the first income etc. Even if the spouse wants to work from home, today there are options - freelance work, part-time work, flexi-hour work, tuitions, cooking/catering, designing, etc can all be done from home. And money is good too.

An important thing to remember is: Even if spouse’s income is 20-30% of the main earner in the family it is great because if even you lived-off one income and invested the other income, financially you can be very well off in the long-term. Hence, everyone should consider this option.

2.Hobby income - Almost everyone has a hobby or an interest - art, cooking, fabrics, designing, books, photography, interest in History or coaching and training. The list is endless. You can use your hobby to generate income and cash-flow. I know many individuals who do this. There is a highly educated person I know who teaches on week-ends for joy and money. One man paints and sells paintings to sustain his art hobby. Another does historical tours. Indulge in your hobby and make it pay. Who knows, it may become your second career!

3. Rent - Being a landlord is fabulous. You get rent for the rest of your life on the asset that you have created. This type of income also can grow if your property is good, well maintained. The growing income is a hedge against inflation. If you can earn rent to pay for your living expenses every month, you can be very close to achieving financial freedom!

4. Passive income from your portfolio - Passive income is income you earn without working. This is the best form of income or cash-flows because you earn it even when you are sleeping. Examples are - Interest earned from fixed deposits, dividend from stocks, gains from shares etc.

The more assets you buy, the more your passive income can grow. Again, the endeavour of every person should be that at least 20-30% of your total income should be from this type of income. This income is a result of a habit of investing. Keep investing and your cash-flows will grow with which you can invest more!

5. Intellectual property (IP) - Writing books, inventing a new machine or process, writing or composing a song are examples of this type of income. This is also a superlative form of income because you create IP only once (with your mind) and reap cash-flow for the rest of your life.

I have given examples of how one person can create up to fivesources of cash-flows. Let me give you an admirable example:

Mr Raman, age 32, works for a bank as a senior manager. He earns Rs 50,000 per month take-home salary. His wife works as a school teacher earning Rs 15,000 per month. Raman had, earlier in his career, sold life insurance policies as an agent earning roughly Rs 50,000 per annum (Rs 4200 per month) as renewal commission every year from those policies sold. Raman has a flat of his own plus a small investment property in neighbouring suburb giving him Rs 15,000 p.m. rent. Raman has a decent small savings portfolio giving him an interest of Rs 5,000 per month. Raman believes he will increase his savings income from Rs 5000 to 15,000 in 5 years time as he plans to save all of his annual bonus (Rs 1.5 lacs per annum) every year.

You see the pattern here? Raman has created 5 cash-flows around himself that gives him wealth and peace of mind. He will continue to grow these all his life.

Raman is not a fictional character. He is a real person (identity not disclosed for privacy) with average talents and not great investing acumen or knowledge but he has managed to be rich, comfortable and risk-resistant. I consider him a great role model and cite his example to many people.

Icing on the cake is Raman’s family lives on Rs 40,000 per month happily. This creates a surplus of around Rs 50,000 every month adding to his wealth. What a great situation to be! He is saving regularly in a pension policy that will pay him a pension of Rs 30,000 p.m. from age 58 when he retires. Add that as one more cash-flow.

Some notable points before you begin to create multiple cash-flows:

- First secure one cash-flow before starting on another;
- Go for small but sustainable cash-flows rather than big gains;
- Regular cash-flows over long-term are preferable over big gains one time. People tend to spend big gains.