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NISM-Series-XV: Research Analyst · Industry Analysis

Introduction to Industry Analysis for NISM Research Analyst

Updated 11 October 2026 · Fact-checked

Industry analysis studies the sector a company operates in: its size, growth, competition, regulation and cycles. In the top-down approach, you move from economy to industry to company. In the exam, you must explain why the industry step comes second and how it links the other two.

Understand Introduction to Industry Analysis

A company does not operate alone. Its sales, margins and risks depend heavily on the industry it belongs to. A strong company in a shrinking industry often struggles. An average company in a fast-growing industry may do well. Industry analysis helps you judge this before you study the company.

The top-down approach has three steps. First, economy analysis looks at growth, inflation, interest rates and policy. Second, industry analysis asks which sectors benefit or suffer from those conditions. Third, company analysis picks the best firms within the chosen industries. Industry analysis is the bridge: it turns broad economic views into sector views, and sector views into a shortlist of companies. The bottom-up approach does the reverse: it starts with the company and gives less weight to the economy and industry.

Industry analysis looks at things such as industry size and growth, the stage of its life cycle, competitive structure, demand and supply, cost drivers, regulation, and sensitivity to the business cycle. These are covered in detail in later topics. In this introduction, you only need to know why they matter and where they fit.

Industries are classified so that similar businesses can be grouped and compared. Classification can be by sector (for example, financials, IT, energy, healthcare), by nature of products (consumer goods, capital goods, services), or by sensitivity to the economy (cyclical, defensive, growth). Stock exchanges and index providers also group companies into sectors and publish sector indices, which help you compare a company with its peers.

Why does this help? Peers face the same demand, regulation and input costs. So comparing a company with its industry shows whether its performance comes from its own strength or just from a rising tide.

Key formulas to remember

Top-down approach
Economy analysis → Industry analysis → Company analysis
Industry analysis is the middle step. It links macro views to company selection.
Bottom-up approach
Company analysis first, with less weight on economy and industry
Do not confuse this with top-down. It is the reverse order.
Classification by economic sensitivity
Cyclical | Defensive | Growth
Cyclical industries move strongly with the economy. Defensive ones are steadier. Growth industries expand faster than the economy for a period.

How to solve Introduction to Industry Analysis questions

Use this method for any question on the purpose, order or classification in industry analysis.

  1. 1Read the question and identify whether it asks about purpose, order of steps, or classification.
  2. 2If it mentions economy, industry and company, check whether the order is top-down or bottom-up.
  3. 3Ask what the industry step adds: sector view, competition, cycle position, regulation or peer comparison.
  4. 4For classification questions, match the example to its basis: sector, product type, or economic sensitivity.
  5. 5Eliminate options that claim industry analysis is unnecessary, or that it replaces company analysis.
  6. 6Eliminate options with absolute words like always or never unless the rule is truly absolute.
  7. 7Pick the option that places industry analysis as the link between economy and company.

Quickest way: Link test

When to use it: Use when you have under a minute and the question asks why industry analysis matters or where it fits.

  1. Picture the chain: economy, industry, company.
  2. Check the option: does it keep this order and treat industry as the link?
  3. Reject any option that skips the industry step or reverses the order for a top-down question.
  4. Choose the option that mentions sector-level factors such as growth, competition or regulation.

Common mistakes in Introduction to Industry Analysis

  • Mixing up top-down and bottom-up order.

    Both terms sound similar and students memorise names, not the direction.

    Fix: Top-down starts with the economy and ends with the company. Bottom-up starts with the company.

  • Thinking a good company always does well regardless of its industry.

    Students focus only on company strength.

    Fix: Remember that industry conditions affect all firms in it. Strong firms can still be hurt by a weak industry.

  • Treating industry analysis as a replacement for company analysis.

    It is seen as a complete method rather than one step.

    Fix: Industry analysis narrows the choice. You still need company analysis to pick individual firms.

  • Confusing sector classification with economic sensitivity classification.

    Both group industries, but on different bases.

    Fix: Sector means what the industry does, such as IT or energy. Cyclical or defensive means how it reacts to the economy.

  • Assuming all industries respond the same way to economic changes.

    Students think of the economy as one uniform force.

    Fix: Different industries react differently. That difference is exactly why industry analysis exists.

Worked examples

Example 1

In the top-down approach to equity research, industry analysis is best described as which of the following? (A) The first step, done before any economy view (B) The link between economy analysis and company analysis (C) A substitute for company analysis (D) The final step after selecting a stock

Show the solution
  1. Recall the top-down order: economy, then industry, then company.
  2. Industry is therefore the middle step, not the first (A is wrong) and not the last (D is wrong).
  3. Industry analysis narrows the choice but does not pick individual firms, so it cannot replace company analysis (C is wrong).
  4. Option B matches the role of a link between the two.

Answer: (B) The link between economy analysis and company analysis.

Example 2

An analyst compares a company's profit growth with the average growth of other firms in the same sector and finds it is higher. Which is the main benefit of this industry-level comparison? (A) It proves the economy is growing (B) It shows whether the performance is better than peers facing similar conditions (C) It removes the need to check management quality (D) It fixes the company's share price

Show the solution
  1. Peers in one industry face similar demand, regulation and input costs.
  2. Comparing with them separates company strength from industry-wide effects.
  3. A does not follow: one comparison cannot prove economic growth.
  4. C and D overstate what a comparison does. It does not replace other analysis or fix a price.
  5. B states the actual benefit.

Answer: (B) It shows whether the performance is better than peers facing similar conditions.

Exam tips

  • Expect direct questions on the order of the top-down approach. Memorise it as economy, industry, company.
  • Watch for options that overstate the role of industry analysis, such as saying it alone decides the investment.
  • Know the three bases of classification: sector, product nature and economic sensitivity. Questions often ask you to match examples.
  • Negative marking applies, so skip only if you cannot remove at least two options. Wrong answers on a 1-mark question cost 25% of that mark.

Practice questions from Industry Analysis

Introduction to Industry Analysis in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Introduction to Industry Analysis: frequently asked questions

Why is industry analysis important in equity research?

Industry conditions affect every company in the sector. Growth, competition, regulation and cycles shape sales and margins. Knowing them helps you judge whether a company's results come from its own strength or from the industry.

What is the top-down approach in research?

It starts with the economy, moves to the industry, and ends with the company. You first form a view on the economy, then choose favourable industries, then select firms within them.

How is the bottom-up approach different?

It starts with the company and gives less weight to the economy and industry. Top-down starts with the broad picture and narrows down.

How are industries classified?

Common bases are sector, nature of products, and sensitivity to the economy, such as cyclical, defensive or growth. Exchanges and index providers also publish sector groupings and indices.