Security analysis'
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Fundamental analysis is a method for evaluating securities by assessing their intrinsic value against current market prices, considering economic, industry, and company-specific factors. It contrasts with technical analysis, which focuses on short-term results, while fundamental analysis seeks long-term investment value. Equity instruments, such as shares, provide ownership in a company but come with risks and valuation challenges.
Security analysis'
- 1. FUNDAMENTAL ANALYSIS & NATURE OF EQUITY INSTRUMENTS DAKSH BHATNAGAR
- 3. INTRODUCTION 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
- 4. ECONOMY WIDE FACTORS 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 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 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 1. 2. 3. Present performance Future prospects Management evaluation
- 7. TECHNICAL V/S FUNDAMENTAL ANALYSIS TECHNICAL ANALYSIS 1. 2. 3. 4. 5. 6. 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. 4. 5. 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 Instruments are used to raise capital of a company Two types of instruments Equity Instrument. Ex:- Equity shares Debt Instrument. Ex:- Debentures 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 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