NISM Series XV · Unit 6 of 15 · about 8% of the paper
Industry analysis: NISM Series XV notes and practice questions
Industries have their own economics. This chapter equips analysts to assess structure, competition and lifecycle.
What to know in Unit 6
- Porter's five forces.
- Industry life cycle.
- Cyclical versus defensive.
Key terms, examples and exam traps
Porter's five forces
Porter's model assesses industry attractiveness by competitive rivalry, threat of new entrants, threat of substitutes, bargaining power of buyers and suppliers.
Example. An analyst evaluates how easy it is for rivals to enter and compete.
Exam trap. This statement is false: Porter's model measures a company's profit margin.
Barriers to entry
Barriers to entry, such as capital needs, regulation, brands and scale, protect existing firms from new competitors.
Example. A telecom sector needs spectrum and heavy capital.
Exam trap. This statement is false: High barriers to entry make an industry easy to enter.
Industry life cycle
Industries pass through start-up, growth, maturity and decline stages, with different growth rates and risks.
Example. A new technology sector is in rapid growth with high uncertainty.
Exam trap. This statement is false: All industries remain in the growth stage.
Cyclical industry
A cyclical industry's earnings rise and fall sharply with the economic cycle, as in steel, autos and capital goods.
Example. A steel company's profits swing with the economy.
Exam trap. This statement is false: Cyclical industries have stable earnings in all conditions.
Defensive industry
A defensive industry sells essentials with stable demand, such as FMCG, utilities and pharma, and holds up better in downturns.
Example. A toothpaste maker's sales remain steady in a recession.
Exam trap. This statement is false: Defensive industries are the most sensitive to the economic cycle.
Industry concentration
Concentration measures how much of the market is held by a few firms; the Herfindahl-Hirschman index is one such measure.
Example. Three firms hold 80% of the market, indicating concentration.
Exam trap. This statement is false: A concentrated industry has many equal small players.
Cost structure
Operating leverage depends on fixed versus variable costs; high fixed costs magnify profit swings as volume changes.
Example. A firm with high fixed costs sees profits jump sharply when sales rise.
Exam trap. This statement is false: Fixed costs change in proportion to sales.
Substitute threat
Substitutes limit the prices an industry can charge, as customers can switch to alternatives.
Example. Rising bus fares push travellers to trains.
Exam trap. This statement is false: Substitutes have no effect on pricing.
Regulation and policy
Government policy, taxes and regulation can change industry profitability, such as price controls in pharma or spectrum charges in telecom.
Example. A price cap reduces margins in a regulated industry.
Exam trap. This statement is false: Regulation never affects industry profits.
PESTLE analysis
PESTLE reviews political, economic, social, technological, legal and environmental factors that affect an industry.
Example. An analyst lists the policy, tech and legal drivers for a sector.
Exam trap. This statement is false: PESTLE is a ratio of price to earnings.
Market share
Market share is a company's sales as a percentage of the industry total and shows competitive strength over time.
Example. A firm's share rises from 20% to 25% over three years.
Exam trap. This statement is false: Market share is the same as profit margin.
Capacity utilisation
Capacity utilisation shows the share of installed capacity actually used; low utilisation signals weak demand or excess capacity.
Example. A cement industry running at 60% capacity has spare supply.
Exam trap. This statement is false: High capacity utilisation always signals weak demand.
SWOT analysis
SWOT lists a company's strengths, weaknesses, opportunities and threats to summarise its position.
Example. An analyst lists internal strengths and external risks in one table.
Exam trap. This statement is false: SWOT is a method of calculating cost of capital.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which term is described here? Government policy, taxes and regulation can change industry profitability, such as price controls in pharma or spectrum charges in telecom.
- Rating and price target history
- Regulation and policy
- Bottom-up approach
- Receivable days
Q2. Which statement best describes “Porter's five forces”?
- A report should state the key risks to its thesis, so readers understand what could go wrong.
- Research analysts must maintain records of research reports, recommendations and the basis for them for at least five years.
- The ex-dividend date is the date from which a share trades without the right to the declared dividend; buyers on or after it do not receive it.
- Porter's model assesses industry attractiveness by competitive rivalry, threat of new entrants, threat of substitutes, bargaining power of buyers and suppliers.
Q3. Which statement best describes “Market share”?
- Intrinsic value is the estimated true worth of a security based on fundamentals, which may differ from market price.
- An individual research analyst must hold the prescribed qualification and the NISM research analyst certification and meet other norms.
- Market share is a company's sales as a percentage of the industry total and shows competitive strength over time.
- Correlation measures how two assets move together, from −1 to +1; lower correlation gives greater diversification benefit.
Q4. Which term is described here? Barriers to entry, such as capital needs, regulation, brands and scale, protect existing firms from new competitors.
- Technical analysis
- Double top
- Stochastic oscillator
- Barriers to entry
Q5. Which statement best describes “Industry life cycle”?
- The equity risk premium is the extra return investors require from equities over the risk-free rate.
- A buyback is the repurchase of a company's own shares, reducing the share count and returning cash to shareholders, through tender offer or open market.
- Support is a price level where buying interest is strong enough to stop a decline temporarily.
- Industries pass through start-up, growth, maturity and decline stages, with different growth rates and risks.
Q6. Which term is described here? A defensive industry sells essentials with stable demand, such as FMCG, utilities and pharma, and holds up better in downturns.
- Sensitivity analysis
- Defensive industry
- Trend
- Treynor ratio
Frequently asked questions
How much of NISM Series XV comes from Unit 6?
Unit 6 (Industry analysis) usually carries about 8% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series XV Unit 6?
Porter's five forces. Industry life cycle. Cyclical versus defensive.
Are these NISM Series XV practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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