NISM 15 Chapter 6: Industry Analysis Frameworks & KPIs | Notes by Dhaval Visariya

NISM Series XV - Chapter 6: Industry Analysis

Every company is part of a larger ecosystem. To value a stock, you must understand if the industry is sunrise (growing) or sunset (declining). Chapter 6 provides the professional frameworks used by analysts to "landscape" a sector.

1. Understanding Industry Cyclicality

Not all industries react the same way to the economy. We classify them into three buckets:

  • Defensive Industries: Low income elasticity (e.g., Pharma, Utilities, FMCG). People need medicine and food even in a recession.

  • Semi-Cyclical Industries: Sales grow in a boom and dip in a recession, but they maintain a "base level" of demand (e.g., Auto, Consumer Durables).

  • Deep Cyclical Industries: Highly sensitive to economic and commodity cycles (e.g., Steel, Cement, Mining).

2. The Business Life Cycle

Just like a product, an entire industry follows a path from birth to death.

  1. Pioneering: The concept is new and unproven. High risk, high potential.

  2. Growth: Concept is validated; mass adoption leads to steep revenue growth.

  3. Maturity: Market is saturated. Growth slows down as everyone who needs the product already has it.

  4. Decline: New technology or changing tastes replace the product (e.g., Typewriters).

  5. Reinvention: Rare, but some industries find a new use case to start a new cycle.

3. Industry Landscaping Frameworks

Professional analysts use these four models to judge the "strength" of an industry:

A. Michael Porter’s Five Forces

This model identifies where the "power" lies in an industry:

  • Horizontal: Threat of New Entrants, Threat of Substitutes, Rivalry among existing players.

  • Vertical: Bargaining Power of Suppliers, Bargaining Power of Buyers.

B. PESTLE Analysis

Evaluates external macro factors: Political, Economic, Socio-cultural, Technological, Legal, and Environmental.

C. BCG Matrix (Portfolio Analysis)

  • Stars: High Growth, High Market Share (The winners).

  • Cash Cows: Low Growth, High Market Share (The money makers).

  • Question Marks: High Growth, Low Market Share (Need investment).

  • Dogs: Low Growth, Low Market Share (The losers).


4. Key Performance Indicators (KPIs) by Industry

If you want to analyze a specific sector, you must look at these "Magic Numbers":

IndustryKey Metrics (KPIs)
Banks / NBFCsNIM (Net Interest Margin), NPA Ratio, CASA Ratio, Capital Adequacy.
IT ServicesAttrition Rate, Revenue per FTE, Bench Strength, Constant Currency Growth.
AirlinesPassenger Load Factor (Occupancy), Price per KM.
TelecomARPU (Average Revenue Per User), Churn Rate.
RetailSSSG (Same-Store Sales Growth), Number of Stores.

5. Regulatory & Tax Environment

An industry's fate is often tied to the "Rules of the Game."

  • Direct Taxes: Corporate Income Tax (includes MAT, Surcharge, and Cess).

  • Indirect Taxes: GST (Goods and Service Tax), Excise Duty, and Customs Duty.

  • Incentives: Governments use taxes to encourage (PLI schemes) or discourage (Sin tax on tobacco) industries.

Dhaval’s Study Tip for Chapter 6:

The BCG Matrix and Porter’s Five Forces are guaranteed MCQ topics. Also, memorize the KPIs for Banks and IT Services, as these are the biggest sectors in the Indian stock market!

Dhaval Visariya

AMFI Registered Distributor (ARN-327925) | Software Developer & Finance Enthusiast

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Disclaimer: I am an AMFI Registered Mutual Fund Distributor. Views expressed here are for educational purposes. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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