1. FUNDAMENTAL
ANALYSIS
AND
TECHNICAL
ANALYSIS
BY AASHISH
SD COLLEGE AMBALA CANTT.

2. investment
 Investment refers to the buying of financial product or any valued item with an
anticipation that positive return will be received in the future.
 The investor can be an Individual,
Government, Pension fund,
or a Corporation.

3. Fundamental analysis
 Fundamental analysis is the analysis of critical factors
that affect the value of a stock. The intrinsic value of an
equity share depends on a multitude of factors. The
earnings of the company, the growth rate, and the risk
exposure of the company have a direct bearing on the
price of the share.
 Fundamental approach is a combination of economic,
industry, and company analyses to obtain a stock’s current
fair value and predict its future value. This is also called
EIC (economics ,industry and company) analysis.

4. Components of Fundamental Analysis
 Economic analysis
 Industry analysis
 Company analysis

5. Economic analysis
 Economic analysis is a study of general economics factors that go into
an evaluation of a security’s value. The stock market is an integral part
of the economy. When the level of economic activity is low, stock
prices are low, and when the level of economic activity is high, stock
prices are high, reflecting a booming outlook for the sales and profits
of firms.

6. commonly analysed macroeconomic factors are as follow
 Gross domestic product
(GDP)
 Savings and investment
 Inflation
 Interest rates
 Budget and fiscal deficit
 Tax structure
 Balance of payments
 Foreign direct investment
 Investment by foreign
institutional investors
(FIIs)
 International economic
condition
 Business cycles and
investor psychology
 Monsoon and agriculture
 Infrastructure facilities
 Demographic factors

7. Gross Domestic Product :-
The GDP represents the aggregate monetary value of the goods and services produced
in the economy during a specified period. Although GDP is usually calculated on an annual
basis, quarterly estimates are also available. The common equation for the calculation of
GDP is:
GDP = Consumption + Investment + Exports - Imports
The growth rate of GDP points out the prospects for the industrial sector and the
return investors can expect from an investment in shares. A decline in the GDP indicates a
potential economic slowdown. A high GDP growth rate is advantageous to the stock market.

8. Savings and Investment:-
It is obvious that growth requires
investment, which in turn, requires a
considerable amount of domestic Growth
in savings naturally leads to more
investments. High capital investment
means possibility more production, more
demand and supply, better prices in the
future and consequently, higher business
profits and a positive outlook for the
stock market.

9. Inflation:-
A simple explanation of inflation is that it refers to a situation where too much money is
chasing too few goods. Inflation indicates a rise in the price of goods and services. Inflation
and stock markets have a very close relationship. If there is inflation, the stock market is
adversely affected. The price of stock is directly related to the performance of the
company. Inflation typically results in the following
• High raw material cost
• Non-availability of cheap credit due to rise in interest rates
• Low earnings
These factors have a negative impact on the
stock price and market return. If there is a
mild level of inflation, it is good for the
stock market but high rates of inflation
inf are harmful.

10. Interest Rates:-
Interest rates have a direct impact on the economy. The base rate of banks affects the
cost of borrowed funds .The base rate is the minimum rate of interest at which banks lend
to anyone. It is the floor rate below which RBI will not allow banks to lend. The base rate
range for scheduled commercial banks for March 2011 was as follows:
• Public sector banks--8.25 to 9.50 per cent
• Private sector banks—8.20 to 10.0 per cent
• • Foreign banks—6.25 to 11.75 per cent
Tax Structure
The finance minister introduced tax exemptions for stock market investments in the Union
Budget(2012-13) to attract retail investors to the stock market. The scheme, named the
Rajiv Gandhi Equity Savings Scheme, will allow 50 per cent tax deductions for those whose
annual income is below lakh and who invest up to Rs 50,000 in stocks subject to a three-
year lock in.

11. Budget and Fiscal Deficit
The budget draft provides a detailed account of government revenues and
expenditures. A deficit budget may lead to a high rate of inflation and adversely
affect the cost of production. A surplus budget may result in deflation. A balanced
budget is highly favorable to the stock market.
Fiscal deficit is the difference between the government's total receipts (excluding
borrowing) and total expenditure. It can be expressed as follows:
Fiscal deficit = Total expenditure (revenue + capital) - (Revenue receipts + Non-debt
capital receipts).

12. Balance of Payments
The balance of payments is the record of a country's money receipts from abroad
and payments to foreign countries. The difference between receipts and payments may
be a surplus or a deficit. Balance of payments Is a measure of the strength of the
rupee on the external account.
Investment by Foreign Institutional Investors
(FIIs)
Flls are considered to be the main drivers of the stock market, Outflows of FII
investments affect the stock market negatively. According to a report in the Times of
India (3 April 2012), net investments by Flls in the stock market in 2011-12 were the
lowest of the past three years, and stood at 47,935 crore. The stock market
barometer Sensex lost 2,041 points or 10 per cent in fiscal 2011-12. The index finished
at 17,404.20 points on 30 March.

13. International Economic Conditions
Worldwide economies are not independent but interdependent. The
boom or depression in our country affects other countries and the
stock market. For example, the sub-prime crisis in the US,
bankruptcies, at 29 per cent drop in the Dow Jones and NASDAQ had
an impact on the Indian economy.
Monsoon and Agriculture
In spite of technological advancements, Indian agriculture still
depends heavily on the monsoons, Goo monsoons are a boon for
agriculture, Agriculture is directly and indirectly linked to many
industries. For example, the sugar, cotton, textile, and food processing
industries depend upon agriculture for raw materials, Farm equipment,
fertilizer, and insecticide industries supply the inputs used in
agriculture.

14. Infrastructure Facilities
Good infrastructure facilities affect the stock market
favorably. Infrastructure facilities are essential for the truth
of the industrial and agricultural sectors. A wide communications
network is a must for the growth of the economy. Regular supply
of energy without any power cuts will enhance production. The
banking and financial sectors should also be strong enough to
provide adequate support to industry and agriculture.
Demographic Factors
Demographic data provide details about the population by
age, occupation, literacy, and geographic location. This is needed
to forecast the demand for consumer goods. The population by
age indicates the availability of a skilled workforce. The cheap
labour force in India has encouraged many multinationals to
launch their ventures. Indian labour is cheaper compared to its
Western counterpart.

15. INDUSTRY ANAlYSIS
 An analysis of the performance, prospects, and problems of an
industry of interest is known as industry analysis. The economic
analysis gives an indication about the direction of the economy and the
stock market. Industry analysis is required because the return and
risk level of industries differ. An industry is a group of firms that
have a similar technological structure of production and produce
similar products.
 Industries can be classified on the basis
of the business cycle, i.e., classified
according to their reactions to the
different phases of the business
cycle. They are classified as growth,
cyclical, defensive, and cyclical
growth industries.

16. Industry Life Cycle
The industry life cycle theory is generally attributed to Julius Grodinsky, a
professor at the Wharton School of Business. The life cycle of the industry is
separated into four well defined stages as given below:
• Pioneering stage
• Rapid growth stage
• Maturity and stabilization
• Declining stage

17. Pioneering stage In this stage, the prospective demand for
the product is promising and the technology of the product is low.
The demand for the product encourages many producers to produce
that particular product. There is severe competition and only the
fittest companies survive this stage. The producers try to develop
the brand name, differentiate the product, and create a product
image.
Rapid growth stage This stage starts with the appearance
of surviving firms from the pioneering stage. The companies that
have withstood the competition steadily improve their market
share and financial performance. The technology used in
production improves resulting in low cost of production and good
quality products. The companies have stable growth rate in this
stage and they declare dividend to their Shareholders.

18. Rapid growth stage This stage starts with the appearance of
surviving firms from the pioneering stage. The companies that have
withstood the competition steadily improve their market share and
financial performance. The technology used in production improves
resulting in low cost of production and good quality products. The
companies have stable growth rate in this stage and they declare
dividend to their Shareholders.
Declining stage In this stage, demand for the particular product
and the earnings of the companies in the industry decline.
Nowadays, very few consumers demand black and white television
sets. Innovation and changes in consumer preferences lead to this
stage. The specific feature of the declining stage is that even in a
boom; the growth of the industry is low and declines at a higher
rate during a recession. It is better to avoid investing in the shares
of the low-growth industry even during a boom. Investment in the
shares of these types of companies leads to erosion of capital.

19. Company analysis
 Evaluating the financial performance of a company on the basis of
qualitative and quantitative factors is called company analysis.
 Qualitative factors are non-quantifiable factors that represent certain
aspects of a company's business. Integrating such information into
evaluation of stock prices can be quite difficult. At same time, they
cannot be ignored.
The management factor is a
qualitative factor.
 Quantifiable factors are measurable
factors like earnings, sales and cost of
production, which directly affect the
revenue of the company.

20. QUALITATIVE FACTORS
The qualitative factors that affect the value of a company's shares are discussed in this
section.
Business Model
The business model describes the way in which a company makes money. A business model
may be simple or very complex. Even before making a financial analysis an investor must know
what exactly the company does. This is explained by the business model. It provides a
description of the company's operations and mode of revenue generation, nature of expenses,
organizational structure and its sales and marketing, efforts. A review of the business model
reveals the possible success level of the company.
Management
Good and capable management teams generate profits for investors. The management of a
firm should efficiently plan, organize, actuate, and control the activities of the company. The
basic objective of management is to attain the stated objectives of the company for the good
of the equity holders, the public, and the employees. If the objectives of the company are
achieved, investors will receive a profit. A management team that ignores profits does more
harm to investors than one that over-emphasizes it.

21. Corporate Governance
Corporate governance refers to the set of systems and practices put in place by a
company to ensure accountability, transparency and fairness in dealings to safeguard the
interests of the stakeholders. A stakeholder includes everyone from members of the board
of directors, management, and shareholders to customers, employees, and society. The
system and practices are defined and determined in the company charter and by-laws, as
well as in corporate laws and regulations. Corporate governance is needed for the following
reasons:
• To provide the framework for the creation of long-term trust between the company and
the stakeholders
• To encourage induction of independent directors with rich experience and innovative ideas
• To enable the management to monitor and face risk
• To facilitate a careful decision-making process and reduce the liability of top management
and director
• To ensure that proper checks and balances are in place to prevent non-ethical and illegal
activities in company management

22. Corporate culture
Corporate culture refers to the collective beliefs, value systems and processes of a
company. It gives a company a unique entity. Every company has a set of values and
goals that helps to define what the business is all about. The basis of corporate culture
is usually expressed in terms of the policies and procedures adopted in the company's
functioning. A strong corporate culture that enables adaptation to a changing market
leads to strong financial results. A corporate culture that values employees, customers
and owners and encourages leadership from everyone in the company, is bound to
perform well. If the customer needs change, a firm's corporate culture changes its
practices to meet these new needs.

23. QUANTITATIVE FACTORS
What follows is a discussion of the quantitative factors that influence stock values.
Earnings of the Company
The earning of a company decide its stock value in the market. The company pays
dividends from its earning. Growing earnings result in high valuation of the stock.
Sometimes, the prices of a stock may be high but not the earnings. This is because the
market anticipates a future rise in the earnings of the company. In simple terms,
earnings are the operating profits of a company. The income for a company is generated
through operating sources and non-operating sources. The sources of operating income
vary from industry to industry. For the service industry no tangible product is involved
and income is generated through the sale of services.
Financial Leverage
The degree of utilization of borrowed money in a business is known as financial leverage.
This depends on the financing decisions of the company. These decisions involve the
selection of the appropriate financing mix and deciding the capital structure or leverage.
Capital structure refers to the proportion of long-term debt capital and equity capital in
the company. The long-term debt capital includes bonds, debentures, etc., and
preference share capital.

24. Operating Leverage
If a firm's fixed costs are a major portion of total costs, the firm is said to have a high
degree of operating average. Leverage means the use of a lever to raise a heavy object with
little force. A high degree of operating leverage implies that, other factors being constant, a
relatively small change in sales results in a large change in return on equity.
Competitive Edge
Major industries in India are composed of hundreds of individual companies. In the
information technology industry, even though the number of companies is large, a few
companies like TCS, Infosys and Wipro (IT) control the major market share. The large
companies are successful in meeting the competition. Once companies attain a leadership
position in the market, they seldom lose it. Over time, they prove their ability to withstand
the competition and retain a sizeable share of the market. The competitiveness of a company
can be assessed by looking at the following aspects:
• Market share
• Growth of annual sales
• Stability of annual sales

25. Production Efficiency
Production efficiency means producing the maximum output at minimum cost per unit of
output. This efficiency measures how well the production or transformation process is
performing. Increasing efficiency boosts the capacity of a business, without any change in
the number of inputs employed. To withstand the competition, a business must be at least as
efficient as its main competitors to survive successfully in the long run. Efficient production
efficiency enables the firm to produce goods at a lower cost than competitors and generate
more profit possibly at lower prices. An expanding company that maintains high operating
efficiency with a low break-even point earns more than the company with a high break-even
point. This ultimately benefits the investor in the form of high earnings per share. Thus, an
increase in production efficiency results in the following:
• Increase in profitability
• Low operational costs
• Optimum use of company resources
• Enhanced competitiveness and market share
• Superior return to the investor

26. Technical approach
 Technical analysis involves predicting the future price movements of the stocks by
analyzing their past prices and volumes. It takes into consideration different graphical
representation of the movement of the prices and trading volumes of the stock in the
past, which are depicted through different chart patterns like line, bar, and
candlestick etc. These charts illustrate different trends of the stocks, their market
movement and help to determine whether the stocks are worth buying or selling.
 The technical analysis time frames shown on charts range from one-minute to monthly,
or even yearly, time spans. Popular time frames that technical analysts most
frequently examine include:
5-minute chart
15-minute chart
Hourly chart
4-hour chart
Daily chart

27. 1) Dow Theory:
“The market is always
considered as having three
movements, all going at the same
time. The first is the Narrow
Movement (Daily Fluctuations)
from Day to Day. The second is
the Short swing (Secondary
Movements) running from Two
weeks to a month and the third
is the Main Movement (Primary
trends) covering at least four
years in its duration.”

28. 2) Elliot Wave Theory:
The theory states that there is a PSYCHE OF THE CROWD inherent in all
respective financial market series. The crowd is not a physical crowd but a
Psychological crowd.
It constantly moves from pessimism to optimism, from fear to greed and from
euphoria to panic and back in a natural psychological sequence, creating
specific patterns in price movements.

29. The Main point emerging from the Elliot Wave concept is that markets have
form (Pattern).
CHARTS:
Charts Organize the historical data about the market in order to
make it easier for interpretations. The main purpose of chart reading is to
determine the price at various level of demand and supply, direction in which price
is moving and thus to predict its future direction of price.
Types of
charts
Line chart
Point and figure
Bar chart
Candle
Stick
chart

30. Candlestick Chart:
A Candlestick chart is a
style of bar-chart used primarily
to describe price movements of a
security over time. It is a
combination of a line-chart and a
bar-chart, in that each bar
represents the range of price
movement over a given time
interval.it is most often used in
technical analysis of equity and
currency price patterns.

31. Line Chart:
A line chart or line graph is a type of graph, which displays information as a
series of data points connected by straight line segments. It is a basic type of
chart common in many fields. It is a extension of a scatter graph, and is created
by connecting a series of points that represent individual measurements with
line segments. A line chart is often used to visualize a trend in data over
intervals of time, thus the line is often drawn chronologically.

32. Point and Figure Chart:
Point and Figure is a charting technique used in technical analysis,
used to attempt to predict financial market prices. Point and Figure charting
does not plot price against time as all other techniques do, Instead it plots
price against changes in direction by plotting a column of Xs as the price rises
and a column of Os as the price falls.

33. Bar Chart:
The bar chart expands on the line
chart by adding several more key
pieces of information to each data
point. The chart is made up of a series
of vertical lines that represent each
data point. The close and open are
represented on the vertical line by a
horizontal dash. The opening price on a
bar chart is illustrated by the dash
that is located on the left side of the
vertical bar conversely the close is
represented by the dash on the right.

34. THANK YOU
Thank you everyone . A special thanks to
Priya Mam , for helping me grow , listening ,
being kind , inspiring and giving such type of
assignment for shaping our future .