Qualitative Fundamental Analysis in Share Market


Qualitative fundamental analysis is the method of analyzing companies based on factors that affect the intrinsic value of a share.

It determines the growth of a company by looking at key numbers and economic indicators.

There are two types of analysis: Quantitative and Qualitative fundamental analysis. We discussed the quantitative fundamental analysis in a detailed manner.

Analyzing qualitative factors is an important part of the company for example customer satisfaction with a product, change in the company’s management, and adoption of new technology that gives an edge of competitive advantage.

Most investors, simply rely on the quantitative fundamental analysis of share market factors such as the company’s assets, liabilities, cash flow, revenue, and price to earnings ratio.

We need to look at the other side of the company, how it comparatively advantages over its industry peers, and how it quickly adopts new technological advancements.

Let us discuss the industry analysis in a detailed manner.

Qualitative Fundamental Analysis:

  • Michael Porter’s Five Force Model
  • Boston Consulting Group Analysis
  • Structure Conduct Performance Analysis

Here, we can discuss three types of industrial analysis one by one

Michael Porter’s Five Force Model:

This model analyses any industry based on five broad parameters or forces. These five forces are divided into vertical and horizontal forces as listed below

Horizontal Forces

  • Threat of substitutes
  • Threat of new entrants
  • Threat of established rivals

Vertical Forces

  • Bargaining power of suppliers.
  • Bargaining power of customers.
Porter's 5 Forces - Qualitative Fundamental Analysis

Industry Rivalry:

In an industry where rivalry is high, such as the aviation and telecom space, the result will be lower pricing power and lower incomes for the industry participants.

Innovation in products, customer service, and technology adoption becomes essential in such an industry.

A strong competitor with deep pockets can easily adopt tactics such as continuously dumping products or services at a lower price than the cost to drive others out of the industry.

Not everyone can sustain losses for a long period. Ex. Reliance JIO.

Thread of Substitutes:

Industries go through significant changes from time to time for example typewriters were substituted by computers. There is a chance for a buyer to switch over the substitute products. It will affect the company’s revenue in the long term.

Threads of New Entrants:

An industry that does not face the threat of new competitors coming in would be an attractive industry for investors. There could be several barriers to entry for new entrants in a business such as licensing required capital/skills (IT products) capital (oil and gas) distribution reach (banking and finance) brand loyalty (FMCG products), etc.

Bargaining Power of Buyers:

The buyer can dictate price if there are a large number of sellers with similar products/services.

The demand and supply equation will determine the buyer’s bargaining power in an industry.

Bargaining Power of Suppliers:

A consumer will rarely bargain over the fees charged by hospitals or schools, but the same consumer will bargain with the vegetable or fruit vendors all the time. In the first case, the bargaining power of suppliers is absolute and in the second case, the bargaining power of the supplier is nil.

Boston Consulting Group Analysis:

BCG Analysis is developed by the Boston Consulting Group. It looks at different segments of a business through the lenses of market growth and cash flow.

BCG created a matrix based on the sensitivity of growth and cash flow as defined pictorially.

BCG Matrix - Qualitative Fundamental Analysis

Stars: These are segments in the business where the market is growing rapidly and the company is having a large market share. Ex. Reliance

Cash Cows: These are the segments that require low cash infusion for investment to maintain market shares because of low growth prospects but at the same time steadily generate cash for the company from the established market share. Ex. ITC

Question Marks: Business segments in a fast-growing market, but having a low market share.

The right strategies and investments can help the market share of the business grow.

But, they also run the risk of consuming cash in the process of increasing market share and in the end turning out to be not enough cash generating. Ex. Suzlon

Dogs: Business segments, which have slow growth rates and intensive competitive dynamics that lead to a low generation of cash are categorized as dogs. Ex. DHFL

Structure Conduct Performance Analysis:

Another method of analyzing industries is looking at the industry structure (monopoly, oligopoly), its conduct (specialized, seasonal or round the year, cyclical or non-cyclical), and its performance (EPS, ROE, ROCE, etc.). Under the SCP model, one can get the financial dimension of the industry from an analysis perspective.


I think it is an eye-opener for investors, from onwards they look at the industry analysis as equivalent to the quantitative analysis. 

Our motive is to educate investors in a perfect manner.

Before investing completely analyze the qualitative and quantitative parameters, once both the parameters match your investment idea then you can be considered for the investment as per your asset allocation.