1.
FUNDAMENTAL ANALYSIS
• Introduction:
The investors’ ultimate aim is to get a
reasonable return on his investment. The investor
who wants to get a reasonable return should
analyze various fundamental factors before
committing his hard earned funds and should hold
his investment for a reasonable period.
Fundamental Analysis helps the investor to identify
the right investment outlet and the right entry and
exit timings and thus it helps in enhancing the
return and reduces the risk of investing.

2.
MEANING OF FUNDAMENTAL
ANALYSIS
• A method of evaluating a security that entails
attempting to measure its intrinsic value by
examining related economic, financial and other
qualitative and quantitative factors.
• Fundamental analysts attempt to study everything
that can affect the security's value, including
macroeconomic factors and company-specific
factors.
• The aim of Fundamental analysis is to forecast the
future price movements of the company
compare with the security's current price.

3.
OBJECTIVES OF FUNDAMENTAL ANALYSIS:
• To conduct a company stock valuation and
predict its probable price evolution,
• To make a projection on its business
performance,
• To evaluate its management and make internal
business decisions,
• To calculate its credit risk.

4.
EIC OF
FUNDAMENTAL
ANALYSIS:
1) Economic Analysis
2) Industry Analysis
3) Company Analysis

5.
MEANING OF ECONOMIC
ANALYSIS:
FOR EXAMPLE
RISING INFLATION
RATES AND INTEREST
RATE
• Economic analysis is the
study of supply and
demand and the choices
(decisions) and incentives
(pricing, taxes, etc.), so
that scarce resources are
used efficiently. Economic
analyses involve
mathematics and statistics,
modeling, simulation, and
optimization methods.

6.
CONCEPT OF ECONOMIC
ENVIRONMENT
• Internal Environment – To analysis strength and weakness of the company and its are controllable in
nature.
• External Environment - To analysis opportunities and threats of the company and its are not
controllable in nature.
• Micro economic environment:
Supplier
Customers
Financial intermediaries
Trade unions
Competitors
Public

7.
CONTINUE…
• Macro economic environment:
GDP
Savings and investment
Balance of payment
Budget
Inflation
Tax structure
Demographic structure
Infrastructural Facilities

8.
FACTORS AFFECTING
ECONOMIC FORECASTING:
• GDP
• Inflation
• Interest rates
• Government revenues, expenditure and deficit
• Exchange rates
• Infrastructure
• Monsoon
• Economic and political stability

9.
ECONOMIC
FORECASTING
METHODS

10.
VARIOUS KINDS OF ECONOMIC
FORECATING METHOD:
• There are many forecasting techniques
available to assist in business planning. Many
forecasting techniques use past or historical
data in form of time series. A time series is
simply a set of observations measured at
successive points in time or over successive
periods of time. Forecasts essentially provide
future values of the time series on a specific
variable such as sales volume.
• Its should be classified into two types are

11.
CONTINUE
• Qualitative Method
When historical data are not available, qualitative forecasting techniques are used. Such techniques
generally employ the judgment of experts in the appropriate field to generate forecasts.
• Quantitative Method
Quantitative forecasting methods are used when historical data on variables of interest are available—
these methods are based on an analysis of historical data concerning the time series of the specific
variable of interest and possibly other related time series. There are two major categories of
quantitative forecasting methods.

12.
VARIOUS ANALYSIS OF
QUANTITATIVE METHOD:
• The first type uses the past trend of a particular
variable to base the future forecast of the variable.
As this category of forecasting methods simply
uses time series on past data of the variable that is
being forecasted, these techniques are called time
series methods.
• The second category of quantitative forecasting
techniques also uses historical data. But in
forecasting future values of a variable, the
forecaster examines the cause-and-effect
relationships of the variable with other relevant
variables

13.
TECHIQUES OF ECONOMIC
FORECASTING:
1) Survey
Expert opinion – Delphi Techniques
Cross – Impact Analysis
Multiple scenarios
2) Economic Indicators
Pro cyclic
Counter cyclic
Acyclic
Other indicators
Leading indicators
Coincidental indicators
Lagging economic indicators

14.
STOCK INVESTMENT
DECISION

15.
STOCK INVESTMENT DECISION
• Population of the country
• Research and Development facilities
• Capital Formation
• Resources
• Gross Domestic Product (GDP)
• Savings and Investments
• Rate of Inflation
• Budget Proposals
• The taxation policy
• Balance of Payment of Currency value
• Monsoon and Agriculture

16.
Businesses, governmental entities, and
other organizations face great
uncertainty and risks when making
decisions about major investments in
new manufacturing facilities, new
products, new markets, new
technologies, new programs, and when
acquiring other companies.
Economic feasibility studies provide the
facts and analytical rigor to improve
these types of strategic decisions.

17.
The term “economic impact
analysis” refers to rigorous
surveys, research, and modeling to
estimate the direct and indirect
economic effects of an entity or
event on the local, county, state, or
economy, as measured by
employment, tax revenue, income,
or gross product (overall economic
output).

18.
Economic indicators Impact on the stock market
GNP -Growth
Decline
-Favourable
-Unfavorable
Price Conditions - Stable
- Inflation
-Favourable
-Unfavourable
Economy -Boom
- Recession
-Favourable
-Unfavourable
Employment - Increase
- Decrease
-Favourable
-Unfavourable
Interest Rates - low
- high
-Favourable
-Unfavourable
Balance of trade - Positive
- Negative
-Favourable
-Unfavourable
Strength of the Rupee in Forex market
- Strong
- Weak
-Favourable
-Unfavourable

19.
INTRODUCTION:
Under fundamental analysis the
next focus area is Industry
Analysis. When the investor is
ensured about the growth of
economy he has to evaluate
various industries and select
the most promising industry for
identifying investment
opportunities. Because in a
sound economy it is not
necessary that all industries
will be sound. Therefore it
becomes pertinent to carefully
select the growth oriented
industries for investment.

20.
MEANING OF INDUSTRY:
• An industry is a group of firms that have similar technological structure of
production, similar materials, technology manpower skill, and distribution
system and produce similar products. They target the same customer
segment. Following are the examples of Industries;
Banking Industry Software Industry
Automobile Industry Cement Industry
Steel Industry Paper Industry
Aluminum Industry Textiles Industry
Rubber Industry Leather Industry
Chemical Industry Pharmaceutical Industry

21.
CLASSIFICATION OF INDUSTRY:
• Growth Industry
• Cyclical Industry
• Defensive Industry
• Cyclical Growth Industry

22.
STAGES OF INDUSTRY LIFE
CYCLE:

23.
INDUSTRY ANALYSIS – ISSUES TO BE
ANALYSED
• Growth of the Industry
• Profitability of the Industry
• Nature of the Industry
• Degree of competition
• Government policy
• Manpower
• Research and development

24.
COMPANY
ANALYSIS

25.
MEANING OF COMPANY
ANALYSIS
• Investors conduct company analysis to evaluate
securities, gathering information about the
company's profile, products or services and
profitability. It is also called fundamental analysis.
• Selecting a company will involve an
analysis of:
• The company’s management
• The company’s financial statements
• Key drivers for future growth

26.
EVALUATING MANAGEMENT
• Strong management is vital for companies to
perform in accord with the highest expectations of
investors. Unfortunately, evaluating the quality of a
company’s management team is very difficult,
especially for individual investors.
• Professionals have the advantage in that they have
many contacts within the industry that are familiar
with the management team, and they can visit the
company and talk with the team personally.

27.
MEASURING FINANCIAL EARNINGS
AND FINANCIAL SOUNDNESS OF
COMAPANY:
• Analysis of financial statement
1) Comparative financial statement
2) Common size statement
3) Trend analysis
4) Fund flow and cash flow analysis
5) Ratio analysis

28.
FORECASTING EARNINGS OF
COMPANY:
• Earnings are profits. It may be complicated to calculate, but that’s what buying a
company is about. Increasing earnings generally leads to a higher stock price and, in
some cases, a regular dividend.
1) The cost and sales
2) Depreciation
3) Depletion of resources
4) Employee cost
5) Currency value
6) Capital structure
7) Efficiency of management

29.
FACTORS AFFECTING COMPANY
ANALYSIS:
• The core strength of the company
• Market share
• Growth of the share
• Profitability

30.
FINANCIAL INDIACTORS:
1)Balance sheet
i) Asset side
ii) Liabilities side
2) Ratio Analysis
i) profitability ratio
ii) Leverage ratio
iii) ROI
iv) ROE
v) Intrinsic value
3) Statement of cash flow
i) Cash flow from operating
activities
ii) Cash flow from investing
activities
iii) Cash flow from financial
activities

31.
NON-FIANCIAL INDICATORS
• Business of the company
• Top management
• Product range
• Diversification
• Foreign collaboration
• Availability of cost of inputs
• Research and development
• Government regulations
• Pattern of shareholding and Listing

32.
TECHIQUES OF COMPANY
ANALYSIS:
• Regression analysis
• Correlation analysis
• Trend analysis
• Decision tree

33.
GRAHAM AND DODD’S
INVESTOR RATIO:
• In 1934, David Dodd and Benjamin Graham
(Warren Buffett’s teacher) wrote what would
later be known as the foundation for value
investing.
• He wrote about their strategy in a book
entitled “Security Analysis”

34.
P = M (D + E + A / 3)
Where,
P = Share Price
M = Earnings of firm paying a normal dividend
D = Dividends per share
E = Earnings per share
A = Adjustment for asset values.

35.
SOME OTHER FORMULA
• Earning yield = Earning per share
Price per share
Dividend yield = Dividend per share
Price per share
Price earning ratios = Price per share
Earning per share

36.
ADVANTAGES OF
FUNDAMENTAL ANALYSIS
• Hidden Gems
• Long term trends
• Solid Foundation
• Understanding of underlying business model

37.
DISADVANTAGE OF
FUNDAMENTAL ANALYSIS:
• Detailed knowledge of company, industry and
economy
• Time consuming
• Subjective
• Variation in fair value
• Analyst bias