Macroeconomic And Industry Analysis

In a globalised business environment ,the top down analysis of the prospects of a firm must begin with the global economy.
The government employs two broad classes of macroeconomic policies viz. demand -side policies and supply side policies. The former are meant to influence the demand for goods and services and the latter the supply for goods and services.
Fiscal policy is concerned with the spending and tax initiatives of the government. Monetary Policy is concerned with the manipulation of money supply in the economy.
To determine the intrinsic value of an equity stock the security analyst must forecast the earnings and dividends expected from the stock and choose a discount rate which reflects the riskiness of the stock.
The earnings potential and riskiness of a firm are linked to the prospects of the industry to which it belongs. The prospects of various industries, in turn , are largely influenced by the development in the macroeconomic environment.
The macroeconomy is the overall economic environment in which all firms operate.
The development of almost every industry may be analysed in terms of a life cycle with four well defined stages: pioneering stage, rapid growth stage, maturity and stablisation stage, and finally decline stage.
Since each industry is unique, a systematic study of its specific features and characteristics must be an integral part of the investment decision process.
Michel Porter has argued that the profit potential of an industry depends on the combined strength of five basic competitive forces:

Threat of new entrants
Rivalry among the existing firms
Pressure from substitute products
Bargaining power of buyers
Bargaining power of Sellers

INDUSTRY ANALYSIS

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