Market sizing is a key step in equity research and investing.
In fact, market sizing is a favorite topic for Strategy & Consulting recruiters (I was asked to estimate the 2-wheeler market size in my case interview for my present firm almost a decade ago)
Now, letโs understand market sizing for a few industries.
Letโs understand ๐๐ผ๐ฝ-๐ฑ๐ผ๐๐ป first. It has the following steps:
a. ๐๐ฑ๐ฒ๐ป๐๐ถ๐ณ๐ ๐ธ๐ฒ๐ ๐ถ๐ป๐ฑ๐๐๐๐ฟ๐ ๐บ๐ฒ๐๐ฟ๐ถ๐ฐ e.g.,
Premiums (for Insurance business),
# of 2-wheelers
# of beds (for hospitals)
AUM (for Asset Management),
b. ๐๐ฒ๐๐ฒ๐ฟ๐บ๐ถ๐ป๐ฒ ๐ถ๐ป๐ฑ๐๐๐๐ฟ๐ ๐บ๐ฒ๐๐ฟ๐ถ๐ฐ ๐๐ฎ๐น๐๐ฒ ๐ฟ๐ฒ๐น๐ฎ๐๐ถ๐๐ฒ ๐๐ผ ๐๐๐ฃ ๐ผ๐ฟ ๐๐ต๐ฒ ๐ฝ๐ผ๐ฝ๐๐น๐ฎ๐๐ถ๐ผ๐ป e.g.,
General Insurance Premium is 1% of Indiaโs GDP,
# of 2-wheelers = 160 per 1000 people,
# of beds = 1.3 per 1000 people,
MF AUM is 20% of GDP
c. ๐๐ผ๐บ๐ฝ๐ฎ๐ฟ๐ฒ ๐๐ต๐ฒ ๐ฎ๐ฏ๐ผ๐๐ฒ ๐๐ถ๐๐ต ๐ด๐น๐ผ๐ฏ๐ฎ๐น / ๐ฒ๐บ๐ฒ๐ฟ๐ด๐ถ๐ป๐ด ๐บ๐ฎ๐ฟ๐ธ๐ฒ๐ ๐ฝ๐ฒ๐ฒ๐ฟ๐ e.g.,
General Insurance Premium is 2% of China and South Africa GDP,
# of 2-wheelers = 300 per 1000 people in China,
# of beds = 3 per 1000 people (WHO recommended),
MF AUM is 25% of China GDP; 50%+ of Brazil and SA GDP
Using this comparison you can estimate the top-down market size.
B๐ผ๐๐๐ผ๐บ-๐๐ฝ market sizing requires more work.
To over simplify, it is p*q i.e.
product price * quantity that can be sold to target customers.
If top-down and bottoms-up are close then you have arrived at a reasonable market size estimate.
Take a look at these video snippets / posts to understand how I bring the above theory into practice for diff industries:
Health Insurance:
2 Wheelers:
Hospital:
Asset Management:
Movie Exhibition:
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