Industry Classification for Indian Companies

Edition-01

Industry Classification

Understanding industry classification is crucial for research in accounting and finance as it allows for more accurate comparisons across firms, sectors, and markets. It aids in identifying trends, benchmarking performance, and analyzing financial health within specific industries. By grouping companies based on primary activities, industry classification enhances the precision of peer analysis, market segmentation, and valuation models. For researchers, this system provides a structured approach to analyze economic trends and assess industry-specific financial risks and opportunities. This article tries to understand the industry classification according to the Thomson Reuters Business Classification(TRBC) and Global Industry Classification Standard(GIC) for Indian companies.

Economic Sector classification

The TRBC Economic Sector classification is the broadest category within the TRBC system, grouping companies into large sectors based on their primary market activities, such as "Energy" or "Financials." ?This high-level classification enables investors, analysts, and researchers to view and compare companies within the same economic category, offering an overarching perspective on industry sectors. Examining companies within these broad sectors facilitates the analysis of market trends, sector performance, and economic shifts. This approach is essential for strategic decision-making, portfolio diversification, and understanding specific economic sectors' overall health and dynamics.

The classification table displays the distribution of companies across various economic sectors, with "Consumer Cyclicals" having the highest frequency (1,132) and "Academic & Educational Services" the lowest (29). The total number of companies across all sectors is 5,332. Other notable sectors include "Basic Materials" (958) and "Industrials" (884).

Business Sector classification

The TRBC Business Sector classification is more refined within the TRBC system, breaking down broad Economic Sectors into specific business segments. By focusing on narrower categories, such as sub-sectors within "Financials" or "Technology," this classification allows for deeper analysis of companies that share similar operational characteristics. It provides a detailed framework for investors and analysts to compare firms operating in closely related business areas, leading to more accurate performance benchmarking and peer comparison. This segmentation also helps identify trends, risks, and opportunities within niche markets, enabling more informed decision-making and a targeted approach to financial research and analysis.

The classification table provides a detailed breakdown of companies across various business sectors within the TRBC system. "Banking & Investment Services" leads with the highest frequency (731), followed by "Cyclical Consumer Products" (658) and "Industrial & Commercial Services" (395). Other significant sectors include "Mineral Resources" (391), "Industrial Goods" (376), and "Chemicals" (373). Sectors with smaller representations include "Insurance" (13), "Financial Technology & Infrastructure" (12), and "Collective Investments" (3). The table showcases the distribution of companies in specific segments, allowing for more granular comparisons and analysis of industries, trends, and business performance across sectors like energy, technology, healthcare, and retail.

Global Industry Classification Standard (GICS)

The Global Industry Classification Standard (GICS) is a highly regarded system created by MSCI and S&P Global to classify companies based on their core business activities. It employs a hierarchical structure that organizes firms into sectors, industry groups, industries, and sub-industries. Investors and analysts widely use this detailed framework to segment financial markets, facilitating more accurate comparative analyses and portfolio management. GICS enhances decision-making by enabling comparisons within and across industries, helping to identify trends, risks, and opportunities. Its global adoption makes it a critical tool for understanding market dynamics and benchmarking company performance at multiple levels.

At the top of the list, "Textiles, Apparel & Luxury Goods" shows the largest representation with 368 companies, followed closely by "Chemicals" with 319 companies and "Capital Markets" with 274. These industries are crucial for global trade and finance, reflecting the extensive activity in these sectors. Other major sectors include "Food Products" (250), "Metals & Mining" (211), and "Machinery" (205), indicating substantial industry participation and reflecting their importance in both industrial and consumer economies.

On the lower end of the spectrum, we see sectors like "Oil, Gas & Consumable Fuels" (37), "Independent Power & Renewable Electricity Producers" (26), and "Beverages" (26), which, while smaller in terms of company representation, play vital roles in specialized markets. These smaller sectors often involve capital-intensive operations, regulatory constraints, or specific market niches.

In terms of niche industries, "Semiconductors & Semiconductor Equipment" (13), "Gas Utilities" (7), and "Water Utilities" (1) have fewer companies. Still, they are highly significant, particularly given their critical role in modern technology and infrastructure. These industries often serve as essential backbones for other sectors, such as IT services, electronics, and sustainable energy.

Other notable industries include "Real Estate Management & Development" (199), "Construction & Engineering" (174), "Pharmaceuticals" (170), and "IT Services" (124), which are integral to both economic development and innovation. These sectors drive technology, healthcare, infrastructure, and finance growth and represent significant opportunities for investors and market analysts.

At the bottom of the list, niche and specialized industries such as "Health Care Technology" (2), "Retail REITs" (1), and "Water Utilities" (1) represent small but critical segments of the market. Though they may have lower company representation, their importance cannot be understated, especially as technology and sustainability become increasingly important drivers of global economic development.

This frequency distribution allows analysts, investors, and researchers to understand better how industries are structured and where the most activity occurs. It helps pinpoint where investment opportunities may lie, identifies potential growth areas, and provides insights into how industries compare globally. By offering a detailed breakdown of companies within each sector, the table is a critical tool for evaluating market trends, conducting peer comparisons, and making informed financial decisions.

TRBC Industry classification

The TRBC Industry classification is a key component of the broader TRBC system, categorizing companies based on their primary business activities into detailed industry groups. This granular classification level is essential for financial analysis, allowing investors and analysts to perform precise peer comparisons and industry-specific benchmarking. By breaking down broader economic sectors into detailed industries, the TRBC system enhances the accuracy of market segmentation and comparative analysis. Its global reach enables cross-border comparisons, making it a valuable tool for understanding industry trends, assessing company performance, and making informed investment decisions across diverse markets.

The table displays the frequency distribution of companies across various TRBC (Business Classification) industries, with 5,366 companies categorized. "Textiles & Leather Goods" has the highest representation (353), followed by "Iron & Steel" (246), and "Food Processing" (232). Industries such as "Investment Banking & Brokerage Services" (216) and "Pharmaceuticals" (212) also show significant representation. Conversely, industries like "Reinsurance," "Mutual Funds," and "Casinos & Gaming" have the lowest representation, each with only one company.

The diverse range of industries, from "Software" and "Construction & Engineering" to niche categories like "Financial Technology (Fintech)" and "Marine Port Services," highlights the granularity of the classification system. This distribution provides a clear view of how companies are spread across various sectors, aiding in detailed industry-specific research, market analysis, and peer comparisons, which are crucial for investment and financial decision-making.

This discussion explored various industry classification systems, including TRBC and GICS, and their importance in financial analysis. We analyzed frequency tables to understand sector representation across industries and discussed their relevance for investors and researchers. Additionally, we examined detailed breakdowns of sectors, identifying key industries and opportunities for comparative analysis.