MBA (Finance) – IV Semester, Investment and Portfolio Management, Unit 2.2
Define Industry Analysis
An industry is a group of firms that have similar technological structure of production and produce similar products. For the convenience of the investors, the broad classification of the industry is given in financial dailies and magazines. Companies are distinctly classified to give a clear picture about their manufacturing process and products. The table gives the industry wise classification given in Reserve Bank of India Bulletin.
The table shows that each industry is different from the other.
Textile industry is entirely different from the steel industry or the power
industry in its product and process.
These industries can be classified on the basis of the business cycle
i.e., classified according reactions to the different phases of the business
cycle. They are classified into growth, cyclical, defensive and cyclical growth
industry.
Growth Industry
The growth industries have special features of high rate of
earnings and growth in expansion, independent of the business cycle. The
expansion of the industry mainly depends on the technological change. For
instance, inspite of the recession in the Indian economy in 1997-98, there was
a spurt in the growth of information technology. It defied the business cycle
and continued to grow. Like wise in every phase of the history certain
industries like colour televisions, pharmaceutical and telecommunication
industries have shown remarkable growth.
Cyclical Industry
The growth and the profitability of the industry move along with
the business cycle. During the boom period they enjoy growth and during
depression they suffer a set back. For example, the white goods like fridge,
washing machine and kitchen range products command a good market in the boom
period and the demand for them slackens during the recession
Defensive Industry
Defensive industry defies the movement of the business cycle. For
example, food and shelter are the basic requirements of humanity. The food
industry withstands recession and depression. The stocks of the defensive
industries can be held by the investor for income earning purpose.
Cyclical Growth Industry
This is new type of industry that is cyclical and at the same time
growing. For example, the automobile industry experiences periods of
stagnation, decline but they grow tremendously. The change in technology and
introduction of new models help the automobile industry to resume their growth
path.
