A growth industry attracts investors who are not weary of taking on high risk for the potential of reaping large returns. A growth industry may be comprised of a large number of growth stocks (individual companies that achieve higher revenue growth than the industry). However, a growth industry may not necessarily result in the creation of growth stocks. This is because an industry may grow fast due to the entry of new players, which exerts pressure on the profitability of individual companies.
A growth industry’s characteristics are:
Emerging markets are typically characterized by growing consumer demand. This supports growth industries. The other typical features of an emerging economy that facilitates growth industries are:
1. High fiscal stimulus for industrial growth
2. Increased availability of loans, like housing and car loans
3. Export financing
4. Huge investments into infrastructure
An industry generally passes through four stages of growth, creating an S-curve: