1.
FUNDAMENTAL ANALYSIS

2.
WHAT IS FUNDAMENTAL
ANALYSIS?
 Fundamental analysis is a technique that
attempts to determine a security‘s value by
focusing on underlying factors that affect a
company's actual business and its future
prospects.

3.
WHY FUNDAMENTAL
ANALYSIS
 Fundamental analysis answers the following
question
 Is the company’s revenue growing?
 Is it actually making a profit?
 Is it in a position strong-enough to outrun
its competitors in the future?
 Is it able to repay its debts?
 Is management trying to "cook the
books"?

4.
FUNDAMENTAL ANALYSIS
 The fundamental school of thought appraises
the intrinsic value of shares through

5.
ECONOMY ANALYSIS
 The first step to this type of analysis includes
looking at the macroeconomic situation.
 GDP/growth rate
 Inflation
 Interest rates
 Foreign Exchange rates
 Agricultural production/monsoon
 FDI/FII
 Govt’s Budget/fiscal policy

6.
ECONOMIC INDICATORS AND THEIR IMPACT ON THE
STOCK MARKET
INDICATOR FAVOURABLE
IMPACT
UNFAVOURABLE
IMAPACT
GDP/GROWTH RATE HIGH GROWTH RATE SLOW GROWTH RATE
DOMESTIC SAVINGS
RATE
HIGH LOW
INTEREST RATES LOW HIGH
TAX RATES LOW HIGH
INFLATION LOW HIGH
IIP/INDUSTRIAL
PRODUCTION
HIGH LOW
BALANCE OF TRADE POSITIVE NEGATIVE
BALANCE OF PAYMENTS POSITIVE NEGATIVE

7.
ECONOMIC INDICATORS AND THEIR IMPACT ON THE
STOCK MARKET
INDICATOR FAVOURABLE
IMPACT
UNFAVOURABLE
IMAPACT
FOREIGN EXCHANGE
POSITION
HIGH LOW
DEFICIT
FINANCING/FISCAL
DEFICIT
LOW HIGH
AGRICULTURAL
PRODUCTION
HIGH LOW
INFRASTRUCTURAL
FACILITIES
GOOD NOT GOOD

8.
Industry analysis
 Industry analysis is a type of investment research
that begins by focusing on the status of an
industry or an industrial sector.
Why is this important?
 Each industry is different, and using one cookie-
cutter approach to analysis is sure to create
problems. Imagine, for example, comparing the
P/E ratio of a tech company to that of a utility.
Because you are, in effect, comparing apples to
oranges, the analysis is next to useless.

9.
2. Industry Analysis
• INDUSTRY ANALYSIS LOOKS AT
a) Business cycle and defensiveness to cycle
b) Industry structure, rules and regulation
c) competitive position of industry
d) Profit potential of industries

10.
Michael Porter’s 5 Force
Model

11.
 Threat of NewEntrants - The easier it is for new companies to enter the industry, the
more cutthroat competition there will be. Factors that can limit the threat of new
entrants are known as barriers to entry. Some examples include:
 Existing loyalty to major brands
 Incentives for using a particular buyer (such as frequent shopper programs)
 High fixed costs
 Scarcity of resources
 High costs of switching companies
 Government restrictions or legislation
 Power of Suppliers- This is how much pressure suppliers can place on a business.
If one supplier has a large enough impact to affect a company's margins and
volumes, then it holds substantial power. Here are a few reasons that suppliers might
have power:
 There are very few suppliers of a particular product
 There are no substitutes
 Switching to another (competitive) product is very costly
 The product is extremely important to buyers - can't do without it
 The supplying industry has a higher profitability than the buying industry

12.
 Powerof Buyers - This is how much pressure customers can place on a business. If one customer
has a large enough impact to affect a company's margins and volumes, then the customer hold
substantial power. Here are a few reasons that customers might have power:
 Small number of buyers
 Purchases large volumes
 Switching to another (competitive) product is simple
 The product is not extremely important to buyers; they can do without the product for a period of
time
 Customers are price sensitive
 Availabilityof Substitutes - What is the likelihood that someone will switch to a competitive product or
service? If the cost of switching is low, then this poses a serious threat. Here are a few factors that
can affect the threat of substitutes:
 The main issue is the similarity of substitutes. For example, if the price of coffee rises substantially,
a coffee drinker may switch over to a beverage like tea.
 If substitutes are similar, it can be viewed in the same light as a new entrant.
 Competitive Rivalry- This describes the intensity of competition between existing firms in an
industry. Highly competitive industries generally earn low returns because the cost of competition
is high. A highly competitive market might result from:
 Many players of about the same size; there is no dominant firm
 Little differentiation between competitors products and services

13.
Company analysis: Financial
analysis
 Financial statement Analysis:
 Common size statement analysis
 Comparative statement analysis
 Fund flow statement analysis
 Cash flow statement analysis
 Trend analysis
 Ratio analysis:

14.
Company Analysis-Non
Financial
Aspects :History, Promoters andManagement
Review Questions
 How old is the company?
 Who are the promoters?
 Is it family managed or professionally managed?
 What is the public image and reputation of the company, its promoters and its products?
Aspects:Technology, Facilities and Production
Review Questions
 Does the company use relevant technology?
 Is there any foreign collaboration?
 Where is the unit located?
 Are the production facilities well balanced?
 Is the size the right economic size?
 What are the production trends?
 What is the raw material position?
 Is the process power- intense?
 Are there adequate arrangements for power?

15.
Non-financial Analysis
Aspect:Product range, Marketing, Selling and Distribution
Review Question:
 What is the company‘s product range?
 Are there any cash cows among the product portfolio?
 How distribution-effective is the marketing network?
 What is the brand image of the products?
 What is the market share enjoyed by the products in the relevant segments?
 What are the effects and costs of sales promotion and distribution?
Aspect:Industrial relations, Productivity and Personnel
Review Question:
 How important is the labour component?
 What is the labour situation in general?
Aspect:Environment
Review Question:
 Are there any statutory controls on production, price, distribution, raw material, etc?
 Is there any major legal constraint?
 What are the government policies on the industry (domestic as well as related to

16.
SWOT ANALYSIS
Internal Strengths Weaknesses
Latest Technology Loose controls
Lower delivered Cost Untrained labour force
Established products Strained cash flows
Committed manpower Poor product quality
Advantageous location Family funds
Strong finances Poor public image
Well- known brand names
External Opportunities Threats
Growing domestic demand Price War
Expanding export markets Intensive competition
Cheap labour Undependable component
Booming capital markets Suppliers
Low interest rates Infrastructure bottlenecks
Power cuts

17.
FUNDAMENTAL ANALYSIS OF A
COMPANY