FUNDAMENTAL ANALYSIS

FUNDAMENTAL ANALYSIS
An investor who would like to be rational and scientific in his investment
activity has to evaluate a lot of information about the past performance
and the expected future performance of companies, industries and the
economy as a whole before taking the investment decision. Such
evaluation or analysis is called fundamental analysis
It involves three steps;

ECONOMIC ANALYSIS

INDUSTRY ANALYSIS

COMPANY ANALYSIS

ECONOMIC ANALYSIS
The performance of the company depends
upon the performance of the economy

The level of economic activity has an impact

on investment in many ways:
If the economy grows rapidly, the industry
can also be expected to show rapid growth
and vice versa.

CONTINUES

The level of economic activity is low, the

sock prices are low..
The level of economic activity is high, stock
prices are high

COMMONLY ANALYZED MACRO

ECONOMIC FACTORS:
Growth rate of National
Income(GDP,GNP.NNP)

Rate of growth of the economy

Aggregate value of goods and services
produced..
Personal consumption expenditure, gross
private domestic investment, govt.
expenditure on goods and services and net
export of goods and services.

CONTINUES..

Annual basis

The higher growth rate is more favorable to

the stock market..

SAVINGS AND INVESTMENT

Stock market is a channel

Distributed over various assets like equity

shares, deposits, mutual fund units, real
estate and bullion.

INFLATION

Mild level of inflation, it is good to the stock

market but high rate of inflation is harmful
to the stock market.

INTEREST RATES

Affects the cost of financing to the firms.

Decrease in interest rate implies lower cost

of finance for firms and more profitability.

Availability of cheap fund encourages

speculation and rise in the price of shares.

BUDGET

Provides elaborate account of the govt. revenues

and expenditure.

A deficit budget may lead to high rate of inflation

and adversely affect the cost of production.

Surplus budget may result in deflation.

THE TAX STRUCTURE

Tax reliefs given to savings encourage

savings.

The Minimum Alternative Tax(MAT) levied by

the finance minister in 1996 adversely affect
the stock market.

The type of tax exemption has impact on the

profitability of the industries.

THE BALANCE OF
PAYMENT(EXCHANGE RATE)

Recorded of a countrys money receipts from

and payments abroad.

The differences between receipts and

payments may be surplus or deficit.

Is a measure of the strength of rupee on

external account.

MONSOON AND AGRICULTURE

Agriculture is directly and indirectly linked with the

industries.

Sugar, cotton, textile and food processing industries

depend upon agriculture for raw material.

A good monsoon leads to higher demand for input

and result in bumper crop.

INFRASTRUCTURE FACILITIES

Essential for the growth of the industries.

Wide network of communication, regular

supply of power, banking and financing etc..

It affect the stock market favorably.

DEMOGRAPHIC FACTORS

It provides details about the population by

age, occupation, literacy, and geographic
location.

Forecast the demand for the consumer

goods.

INDUSTRY
ANALYSIS

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INDUSTRY ANALYSIS

An evaluation of the relative strength and weakness

Some industries which are fast growing

Some industries are stagnating or declining

The returns will be based on the particular industry

So selection of the industry is very important.

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CONCEPT OF INDUSTRY
As

a homogeneous group of companies

Industry

defined as

a group of firms producing reasonably similar

products which serve the same needs of a common set of buyers.

Industries

are classified on the basis of products

eg:cement

industry, steel industry, tyre industry

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I. INDUSTRY LIFE CYCLES

All industries are in different stages

of development!
You

must determine at which stage your

industry is in currently
Remember that technological innovation may
have the effect of changing the life cycle of the
industry

Stage
Start-up
Expansion
Stagnation
Relative Decline

Sales Growth
Rapid & Increasing
Stable
Slowing
Minimal or Negative

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CONTINUE..
1.

Pioneering stage

Technology and products are relatively new

Not reached a state of perfection

This stage is characterized by rapid growth in

demand

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2. Expansion stage

Also known as growth stage

The existing players try to become stronger

Each players finds a market for itself

And develop its own strategies to sell

And maintain its position in the industry

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3.Stagnation stage

The growth of the industry stabilizes

Industry to grow appears to be grim..

Perhaps sales may be increasing but the growth

rate may be far below than the economy grows

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4.Decay stage

Stagnation stage to decay stage

This happens when the products are longer in

demand

Introduction of new products and technologies

to the market

Changes of customer habits, style and liking

Industry becomes obsolete and gradually get

vanished
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INDUSTRY LIFE CYCLES

Stage 1
Start-up

Stage 2
Expansion

Stage 3
Maturity

Stage 4
Decline

Beginning
Rapid Stabilization and
Deceleration Development
Growth Market
Maturity of Growth

FACTORS TO BE CONSIDERED

Growth of the industry

Cost structure and profitability
Nature of the product
Nature of the competition
Government policy
Labour
Research and development

CLASSIFICATION OF INDUSTRIES
Growth

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INDUSTRY CHARACTERISTICS

Demand supply gap

Competitive condition in the industry

Permanence

Labour conditions

Attitude of government

Supply of raw material

Cost structure

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THANK YOU

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