Sector Analysis means how a group of companies involved in similar kind of business are performing as a whole. Though the two terms are often used interchangeably - 'industry' and 'sector' are not one and the same thing. A sector is a much broader concept than an industry. For example, Finance Sector may have further classifications such as Insurance, Broking Services, Investment Banks and Agriculture Sector includes Fertilizer Industry, Food Processing Industry, and Agricultural Equipments. Unlike a company profile report that talks about company fundamentals, its growth chart, and past and future performances, a sector analysis report reviews the current condition of a particular sector of the economy and tries to predict its future. A sector analysis report can help you get the better of sector momentum and help you choose your stocks using the top-down approach.
All those who have even little knowledge of financial markets must have read about economic cycles, where stock markets zoom for some time, reach a peak and then head downwards. Again, they hit a bottom and zoom upwards again. This is an established fact. When we delve deeper into history of stock market investments, we find that certain sectors perform better in a particular phase of economic cycle. Hence, experienced investors use sector rotation strategy to make profits all the time - whether it is bull market (when markets rise) or bear market (when markets fall). A sector analysis report offers great insight to traders and investors to identify sectors that will be more successful in the particular phase of the economy.
Even if you are not into sector rotation yet and are just beginning to develop your portfolio, you can take help of a sector analysis report to choose your stocks. You may choose a top-down approach or a bottom-up approach to pick stocks. Both have been used by traders since times immemorial. If you happen to feel more comfortable with the top-down approach, you will have to start with the overall health of global economy. These days, emerging markets are offering better returns than developed companies and India and China are two of the most flourishing economies of the world. Then, you move on to check the leading market indicators of the region we want to invest in.
In Indian market sensex and NIFTY are the benchmark indicators that show whether the economy is uptrend at the time you are investing or not. Once you have decided on the current strength of the markets and analyzed the trends, you can look at sector analysis reports to find out which industry has brightest prospects in the near future. You can then pick up industry leaders in the booming sectors and play safe.