November 13, 2024
6 mins read
Fundamental analysis is a concept that you need to be thoroughly aware of before investing in any stock. It is a series of techniques that enable you to determine whether a stock is undervalued or overvalued. In addition to helping you find undervalued and overvalued stocks, fundamental analysis also gives you a host of other information about a company, such as its future growth prospects and its market share.
Although it might seem like a relatively unimportant piece of information, knowing the market share of a company is crucial to determining the nature of its hold and dominance it has over the industry.
If you’re wondering about the meaning of market share and how it is calculated, here’s a comprehensive guide that may be able to help you out.
Market share is, quite literally, a company’s slice of the industry pie. It measures the percentage of total sales or revenue in a sector that belongs to one company. If a company has 40% market share, it means that out of every ₹100 that customers spend in that industry, ₹40 goes to them.
It shifts constantly, because industries evolve. New products, consumer behaviour, pricing strategies — they all nudge the numbers. Which is why analysts keep recalculating it. It’s not about locking a number in forever but tracking whether a company is holding ground or losing relevance.
The formula is simple:
Market Share (%) = (Company’s Revenue ÷ Total Industry Revenue) × 100
Take an example. Suppose the shoe manufacturing industry earns ₹20 lakhs in a year. Company B’s revenue is ₹12 lakhs. Using the formula:
Market Share of B = (₹12 lakhs ÷ ₹20 lakhs) × 100 = 60%
So, Company B commands 60% of the market — a clear leader. Company A and C share the rest. It’s like splitting a pizza. If B gets more than half, it’s obvious who dominates the table.
Market share alone is useful, but it doesn’t tell you how a company stacks up against rivals. That’s where relative market share comes in. It compares a company’s market share with that of the biggest player in the industry.
As you’ve already seen, the shoe manufacturing industry in the previous example has 3 major manufacturing entities – A, B and C. The total revenue from the industry for the previous financial year (2022 – 2023) was ₹20 lakhs. The total revenue and market share percentages of all three entities are listed below.
Entity | Revenue (2022 – 2023) | Market Share Percentage |
A | ₹5 lakhs | 25% |
B | ₹12 lakhs | 60% |
C | ₹3 lakhs | 15% |
Now, to find out the relative market share of entity A, all you need to do is substitute the market share percentages listed above in the respective formula.
Relative market share of entity A = 41.66% [(25% ÷ 60%) x 100]
This means that entity A owns a market share of 41.66% relative to the biggest industry leader, entity B
Why care about market share at all? Because it quietly signals power. A company with high market share often has pricing strength, better bargaining power with suppliers, and visibility with consumers. Investors use it as a quick pulse check — if a firm keeps expanding its share, it’s usually doing something right.
But it’s not a crystal ball. Market share doesn’t tell you about debt, management quality, or profitability. A company can control half the market and still bleed money. Which is why market share is a piece of the puzzle, not the full picture.
Acquiring market share is much easier said than done, although companies employ various methods. Some are direct and some are indirect. Here are the primary ways:
Variation in pricing strategies: Competitive pricing can boost larger segments of a customer population, especially in price-sensitive markets.
New product development: By launching new product features or services, companies keep customers engaged and the competition off guard.
Mergers and acquisitions: By absorbing another company, firms instantly gain its customers and share.
Brand awareness campaigns: Marketing and visibility efforts increase recognition and recall, boosting customer preference.
Customer loyalty programs: Discounts, rewards, or personalised services make customers stick around, reducing churn.
The end goal isn’t just to grab more sales but to create lasting stickiness — the kind where customers come back without thinking twice.
Many things could impact it:
Pricing: Lower prices typically increase share, while higher prices may drive customers away.
Innovation: New technology or better products can change loyalty overnight.
Mergers and acquisitions: Consolidation provides access to an instant customer base.
Brand awareness: The more recall of your brand, the more likely customers will purchase it.
Customer loyalty: Providing quality and rewards keeps repeat customers coming back.
All of these combine to either grow a company's market share or diminish it.
Additional Read: What are the Factors Affecting Share Prices?
Market share can seem like a number, but it tells you so much more. It says the company's position in the marketplace and the tie to the consumer, and occasionally implies their strength. But it is not the whole picture. Two firms with the same share can have completely different financial health.
That’s why investors often pair market share with relative market share for context. The combination helps reveal not just dominance but competitive distance. In the end, market share isn’t the whole story, but it’s definitely a chapter you can’t skip.
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Market share is calculated by dividing a company’s sales or revenue by total industry sales, then multiplying by 100 to get a percentage.
It indicates how well a company performs against competitors, helps assess growth, and shows the brand’s position and influence in the market.
Yes, market share frequently changes due to shifts in consumer preferences, competitive actions, new products, or overall market demand fluctuations.
Mergers and acquisitions often boost market share instantly by combining revenues, customer bases, and resources from both businesses into one stronger entity.
Investors use market share to evaluate a company’s industry position, stability, growth potential, and ability to compete effectively against major players.
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