Fundamental Analysis and Nature of Equity Instruments are the topics that have been discussed in this presentation

1. FUNDAMENTAL ANALYSIS &
NATURE OF EQUITY
INSTRUMENTS
DAKSH BHATNAGAR

2. FUNDAMENTAL ANALYSIS

3. INTRODUCTION
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Top Down Approach (gets narrow as we move ahead)
Method of evaluating securities by attempting to measure
the intrinsic value of a stock and comparing it with the
prevailing market price for the purpose of decision
making.
Focuses on examining the fundamentals of the security in
order to make an investment decision
Three factors are considered while doing such analysis:Economy Wide Factors
 Industry Wide Factors
 Company Wide factors
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4. ECONOMY WIDE FACTORS
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50% change in share prices are attributable to
economy wide factors
Domestic and global factors to be taken into account
for economic analysis
Domestic factors comprise of GDP, price level and
inflation, consumer sentiment, agriculture and
monsoon, interest rates, infrastructure facilities etc.
Global factors would comprise exchange rates,
balance of payments, foreign exchange reserves etc.

5. INDUSTRY WIDE FACTORS
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Industry is a group of companies having similar way of
production or the companies have similar output. Based on
SIC code, there can be various industries
13% change in a share’s price is due to industrial influence
We do industrial analysis to identify those industries which
are performing well enough and have chances of growth
Industrial analysis can be done in four parts:1.
2.
3.
4.
Sensitivity of the Industry to the Business Cycle
Industry Life Cycle Analysis
Structure & Characteristics of the Industry
Profit potential of industries – Porter’s 5 force model

6. COMPANY WIDE FACTORS
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After the industrial analysis, we are now concerned about
finding the company that seems most lucrative to us in
terms of returns and risk
27% change in share’s price is attributable to company’s
performance
The company analysis can be done under the following
heads Strategic analysis
 Accounting analysis
 Financial analysis
 Qualitative analysis
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1.
2.
3.
Present performance
Future prospects
Management evaluation

7. TECHNICAL V/S FUNDAMENTAL ANALYSIS
TECHNICAL ANALYSIS
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Based on Bottom-Up
Approach
Is more risk taking, focuses
on immediate results (
capital gains)
Keeps the money working
at all times.
Acts on what and not why
i.e. it identifies trends and
patterns and not the value.
The decision making
process is very quick and
therefore favored by
Speculators
Short term orientation
FUNDAMENTAL ANALYSIS
1.
2.
3.
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6.
Based on Top-Down
approach
Is patient and conservative,
does not expect immediate
profits
Blocks capital for a longer
time frame.
Aims at finding the intrinsic
value , focuses on Why .
The analysis is time
consuming and is preferred
by investors.
Long term focus

8. NATURE OF EQUITY INSTRUMENT

9. INTRODUCTION
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Instruments are used to raise capital of a company
Two types of instruments
 Equity
Instrument. Ex:- Equity shares
 Debt Instrument. Ex:- Debentures
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An equity instrument is an instrument buying which
gives the buyer ownership of the company for the part
the buyer has purchased (ex.)

10. NATURE
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Equity Instrument Holder gets ownership for the
portion purchased
No assurance of fixed income
Voting rights
Unlimited life
Both investment and speculative aspect
Difficulty in valuation
More cost than compared to that of debt