NISM Series XV Chapter 6: Industry Analysis Practice Questions

Question 1

In market sizing, what approach involves quantifying the market by looking at individual companies and aggregating their data to arrive at the industry size?

Accepted Answer

Bottom-up approach. The text states: 'In bottom-up approach, we quantify the market by looking at individual companies and aggregating their data to arrive at the industry size.'

Question 2

A research analyst quantifies the total industry size for a particular therapy by identifying the number of patients and ascertaining the average expenditure per patient. What market sizing approach is being used?

Accepted Answer

Top-down approach.. The text states, 'In a top-down approach, we measure the size of the market or industry starting from macro-economic factors and arrive up to the industry level. For example, if we were to quantify the total industry size for a particular therapy, we can use the top-down approach as follows: (i) identify how many patients underwent the therapy (ii) ascertain average expenditure per patient (iii) take the product of (i) and (ii) to arrive at the revenue.'

Question 3

An analyst quantifies the total industry size for a particular therapy by identifying the number of patients who underwent the therapy and ascertaining the average expenditure per patient. This approach is an example of which market sizing method?

Accepted Answer

Top-down approach. The text provides this exact example for the top-down approach: '(i) identify how many patients underwent the therapy (ii) ascertain average expenditure per patient (iii) take the product of (i) and (ii) to arrive at the revenue.'

Question 4

The shift from film rolls to digital cameras and then to mobile cameras is cited as an example of a secular trend driven by:

Accepted Answer

Technological advancement.. The text explicitly states that 'Digital cameras made film rolls obsolete; mobile cameras made entry level digital cameras obsolete' as an example of secular trends caused by 'Technological advancement'

Question 5

Which of the following is NOT mentioned in the text as a standard industry classification system?

Accepted Answer

International Standard Industrial Classification (ISIC). The text mentions NIC, GICS, and NAICS as standard industry classification systems, but does not refer to ISIC

Question 6

What is explicitly identified as the very first step in an industry analysis?

Accepted Answer

Defining the industry in which the company operates.. The text states, 'The very first step in an industry analysis is to define the industry in which the company operates.'

Question 7

According to the provided text, which of the following best defines an 'Industry'?

Accepted Answer

A grouping of firms, which offer the same or similar products or service to serve the same customer need.. The text states: 'Industry is a grouping of firms, which offer the same or similar products or service to serve the same customer need'

Question 8

When a company competes in many industries, what approach should an analyst take to classify it effectively for industry analysis?

Accepted Answer

Carefully consider the various factors that drive the business and classify it as part of the industry group with common driving factors.. The text advises, 'An analyst should carefully consider the various factors that drive the business and should classify it as part of the industry group which have such common driving factors.'

Question 9

The text highlights that standard industry classification systems like NIC may not always capture the substance of an industry. What example is used to illustrate this challenge, particularly from an analyst's perspective?

Accepted Answer

The classification of all car manufacturers, including entry-level and luxury, under a single category despite different market dynamics.. The text states, 'For instance, NIC has a single classification for manufacture of passenger cars. Thus, every car manufacturer including entry level compact car manufacturers and high-end luxury car manufacturers fall under the same industry classification. However, since the dynamics of the luxury car manufacturer is very different from entry level passenger car segment, analysts may view them as different industries.'

Question 10

Which characteristic best describes 'Defensive industries' as per the text?

Accepted Answer

They create products and services with low-income elasticity, experiencing minimal impact from economic cycles.. Defensive industries are characterized by low-income elasticity, meaning a fall or rise in income does not significantly affect demand, leading to minimal impact from economic cycles

Question 11

Which of the following is NOT listed as a factor that drives secular trends according to the text?

Accepted Answer

Daily fluctuations in stock market indices. The text lists technological advancement, change in income levels, demographic changes, change in culture/tastes/preferences, and changes in regulation/government policy as drivers of secular trends. Daily fluctuations are not mentioned

Question 12

All of the following are explicitly mentioned in the text as factors that drive secular trends EXCEPT:

Accepted Answer

Fluctuations in short-term interest rates. The text lists Technological advancement, Change in income levels, Demographic changes, Change in culture, and Changes in regulation or government policy as factors driving secular trends. Fluctuations in short-term interest rates are not mentioned

Question 13

The implementation of GST in India leading to certain efficiencies in the logistic industry and a reduced demand for new commercial vehicles is an example of a secular trend driven by which factor?

Accepted Answer

Changes in regulation or government policy.. The text explicitly states this under 'Changes in regulation or government policy' as a driver for secular trends

Question 14

Which of the following best describes an 'Economic sector' according to the provided text?

Accepted Answer

Segments of an economy that contribute to the total national income or national product.. The text defines an economic sector as 'segments of an economy which contribute to the total national income or national product, like agriculture, manufacturing, public utilities, and services'

Question 15

As per the text, what is identified as the very first step in an industry analysis?

Accepted Answer

Defining the industry in which the company operates.. The text explicitly states: 'The very first step in an industry analysis is to define the industry in which the company operates.'

Question 16

When faced with the challenge of defining an industry for a company like PVR Limited, the text suggests that an analyst should primarily:

Accepted Answer

Carefully consider the various factors that drive the business and classify it as part of the industry group with common driving factors.. The text advises that an analyst 'should carefully consider the various factors that drive the business and should classify it as part of the industry group which have such common driving factors'

Question 17

What is the primary purpose of industry analysis in fundamental analysis?

Accepted Answer

To determine how each industry is impacted by current economic conditions.. Industry analysis helps in understanding how each industry would be impacted under the current economic conditions, as stated in the text

Question 18

In a top-down approach to market sizing, an analyst would typically start by measuring the market size from:

Accepted Answer

Macro-economic factors.. A top-down approach to market sizing involves starting from macro-economic factors and then arriving at the industry level

Question 19

Industries like Capital Goods or Steel, which witness extreme cyclicality in their revenues largely driven by economic or commodity cycles, are categorized as:

Accepted Answer

Deep cyclical industries.. The text states that 'Deep cyclical industries: These industries witness extreme cyclicality in their revenues as they are largely driven by economic cycle and/or commodity cycles. Capital goods industry or Steel exhibits such behavior.'

Question 20

The significant fall in mobile service prices due to high competition intensity in the Indian telecommunication space, which led to a decline in shareholder value for telecom companies but increased consumption of digital products and traction for digital content providers, is an example of which type of value migration?

Accepted Answer

Migration across the value chain.. The text describes this scenario under 'Migration across value chain,' where industries at the 'down end of value chain gain at the cost of those at the upper end or vice versa.'

Question 21

The advent of digital cameras leading to a massive decline in the film rolls industry and the shutdown of large companies like Kodak is presented in the text as an example of which specific type of value migration?

Accepted Answer

Cross industry migration. The text explicitly states: 'Cross industry migration happens when one industry gains at the cost of another. For example, advent of digital cameras resulted in massive decline of film rolls industry and saw big companies like Kodak having to shut down.'

Question 22

Which characteristic primarily describes Defensive Industries?

Accepted Answer

They have products and services with low-income elasticity, experiencing minimal economic cycle impact.. Defensive industries 'create products and services that have low-income elasticity i.e., a fall or rise in income does not affect the demand significantly.'

Question 23

According to the provided text, what defines an 'Industry'?

Accepted Answer

A grouping of firms which offer the same or similar products or service to serve the same customer need.. The text defines Industry as 'a grouping of firms, which offer the same or similar products or service to serve the same customer need.'

Question 24

The advent of digital cameras causing a massive decline in the film rolls industry, leading to companies like Kodak shutting down, is an example of which type of value migration?

Accepted Answer

Cross industry migration. The text explicitly states: 'Cross industry migration happens when one industry gains at the cost of another. For example, advent of digital cameras resulted in massive decline of film rolls industry'

Question 25

Which of the following best describes the behavior of 'Deep cyclical industries' during recessionary conditions, as per the text?

Accepted Answer

Their sales drop significantly as most companies put their capacity expansion plans on hold.. The text states that 'Deep cyclical industries' witness extreme cyclicality and 'During recessionary conditions, their sales drop significantly as most companies put their capacity expansion plans on hold.' Option D describes their behavior during recovery, not recession

Question 26

According to the text, an 'Industry' is best defined as a grouping of firms that:

Accepted Answer

Offer the same or similar products or services to serve the same customer need.. The text defines an industry as 'a grouping of firms, which offer the same or similar products or service to serve the same customer need'

Question 27

What is the primary role of industry analysis in fundamental analysis?

Accepted Answer

To identify how individual industries will be impacted under current economic conditions.. The text states, 'Industry analysis helps in understanding how each industry would be impacted under the current economic conditions.'

Question 28

What is the primary purpose of Industry analysis in fundamental analysis?

Accepted Answer

To understand how each industry would be impacted under current economic conditions.. According to the text, 'Industry analysis helps in understanding how each industry would be impacted under the current economic conditions.'

Question 29

According to the provided text, which of the following best defines an 'Industry'?

Accepted Answer

A grouping of firms, which offer the same or similar products or service to serve the same customer need.. The text states: 'Industry is a grouping of firms, which offer the same or similar products or service to serve the same customer need'

Question 30

The challenge faced by an analyst when classifying PVR Limited, which competes with both OTT platforms and live theatres, primarily highlights the difficulty in what aspect of industry analysis?

Accepted Answer

Defining the industry. The example of PVR Limited is used to illustrate the 'challenges in defining an industry' when a company competes in many industries

Question 31

Economic analysis helps understand general economic growth or decline. What is the primary role of industry analysis in fundamental analysis?

Accepted Answer

To understand how each industry would be impacted under current economic conditions.. According to the text, 'Industry analysis helps in understanding how each industry would be impacted under the current economic conditions.'

Question 32

Industries that create products and services with low-income elasticity, meaning a fall or rise in income does not significantly affect demand, are classified as what type of industries?

Accepted Answer

Defensive industries. The text defines 'Defensive industries' as those that 'create products and services that have low-income elasticity i.e., a fall or rise in income does not affect the demand significantly'

Question 33

The text describes a scenario where 'high competition intensity in the Indian telecommunication space resulted in significant fall in price of mobile services, which in turn led to significant decline in shareholder value for telecom companies. However, this resulted in increased consumption of digital products and thus more traction for digital content providers.' This is an example of which type of value migration?

Accepted Answer

Migration across value chain. This example specifically illustrates 'Migration across value chain', where one part of the value chain (digital content providers) gains at the cost of another (telecom companies)

Question 34

What phenomenon, as described in the text, occurs when a long-term advantage is created for one or more entities at the cost of other entities, leading to an increase in shareholder value for the gaining entity and a loss for the losing entity?

Accepted Answer

Value migration. The text defines value migration as happening 'when a phenomenon creates long term advantage for one or more entities at the cost of other entities. Thus, the entity that gains witnesses an increase in its shareholder value, while the other entity loses.'

Question 35

The example of PVR Limited competing with satellite channels, OTT platforms, live theatres, and sporting leagues primarily illustrates which challenge for research analysts?

Accepted Answer

Identifying the appropriate industry definition when a company competes across diverse entertainment forms.. The PVR example highlights the difficulty in defining whether the company belongs to 'cinema exhibitors', 'entertainment media industry', or 'Out of Home (OOH) entertainment industry' due to its diverse competition, making it challenging to classify

Question 36

The example of PVR Limited illustrates the challenge in industry definition because:

Accepted Answer

Classifying it narrowly as cinema exhibitors risks overlooking competitors like OTT platforms and live performances.. The text states that applying a narrow industry definition for PVR Limited, such as cinema exhibitors, risks overlooking other competitors like satellite channels, OTT platforms, live theatres, and sporting leagues

Question 37

Based on the text, what is the key distinction between a 'Business Sector' and an 'Economic Sector'?

Accepted Answer

A Business Sector comprises similar and related industries, while an Economic Sector represents segments of an economy contributing to national income.. The text defines 'Business Sector as a broad category comprising similar and related industries' and 'Economic sector represents the segments of an economy which contribute to the total national income or national product'

Question 38

The example of passenger car manufacturing, where entry-level compact car manufacturers and high-end luxury car manufacturers fall under the same NIC classification but have different dynamics, illustrates which significant challenge in industry analysis?

Accepted Answer

The inability of standard industry classification systems to always capture the substance of an industry.. The text explains that standard classification systems like NIC 'may not necessarily capture the substance of the industry' because dynamics can differ significantly within a single classification

Question 39

Which category of industries experiences minimal impact on account of economic cycles and is primarily affected by secular trends?

Accepted Answer

Defensive industries. Defensive industries are described as having low-income elasticity, meaning a fall or rise in income does not affect demand significantly, thus experiencing minimal impact from economic cycles

Question 40

Which of the following is an example of a 'Business Sector' as defined in the text?

Accepted Answer

Financial Services Sector, encompassing Insurance, Banking, and Credit Rating.. The text provides 'Financial Services Sector encompassing Insurance, Banking, Credit Rating, Investment Banking' as an example of a Business Sector

Ch.6: Industry Analysis

What You Will Learn in This Chapter

Multiple Choice Questions (40)

Case-Based Questions (2 sets)

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