O SlideShare utiliza cookies para otimizar a funcionalidade e o desempenho do site, assim como para apresentar publicidade mais relevante aos nossos usuários. Se você continuar a navegar o site, você aceita o uso de cookies. Leia nosso Contrato do Usuário e nossa Política de Privacidade.
O SlideShare utiliza cookies para otimizar a funcionalidade e o desempenho do site, assim como para apresentar publicidade mais relevante aos nossos usuários. Se você continuar a utilizar o site, você aceita o uso de cookies. Leia nossa Política de Privacidade e nosso Contrato do Usuário para obter mais detalhes.
UNIVERSITY OF MYSORE
SEMINAR ON FUNDAMENTAL ANALYSIS
PROF. B. NAGARAJU.
DOS IN COMMERCE.
• Fundamental Analysis is to evaluate a lot information about the
past performance and the expected future performance of
companies, industries and the economy as a whole before
taking the investment decision. Such evaluation or analysis is
called fundamental analysis.
• Fundamental analysis is really a logical and systematic
approach to estimating the future dividends and share price.
Fundamental analysis is performed on historical and present
data, but with the goal of making financial forecasts.
There are several possible objectives:
• 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
• To calculate its risk.
• · Fundamental analysis is a method of evaluating a security or
asset by attempting to measure its intrinsic value by examining
related economic, financial and other qualitative and quantitative
• · Fundamental analysts attempt to study everything that can
affect the security's value, including macroeconomic factors (like
the overall economy and industry conditions) and individually
• · The fundamental approach is based on an in-depth and all-
around study of the underlying forces of the economy, conducted
to provide data that can be used to forecast future prices and
• · Fundamental analysis can be composed of many different
aspects: the analysis of the economy as the whole, the
analysis of an industry or that of an individual company.
• · A combination of the data is used to establish the true
current value of the underlying asset, to determine whether
they are over- or under-valued and to predict the future
value of the underlying asset based on this information.
• · As far as short-term trading is concerned, fundamental
analysis cannot be used as a "tactical", short-
term decision-making method.
• · It helps an investor obtain information about the overall state
of the market, attractiveness and state of a specific security as
compared to other securities, However, when and how to react
to the information, derived through fundamental analysis, is
determined using technical analysis.
• · Though the basic approach is the same while doing
fundamental analysis, the various factors that affect the value of
the underlying asset keep changing depending upon the class
and nature of the asset under focus.
• · For example weather may not play a major factor while
analyzing the value of the share of a company, which is in the
business of Information technology.
• · Thus it is important for an analyst to identify the factors that are
likely to affect the value of the underlying asset and then resort to
the study of the said factors.
• · Fundamental analysis seeks to identify the fundamental
economic and political factors that determine a commodity’s price.
It is basically an analysis of the (current and future) demand and
supply of a commodity to determine if a price change is imminent,
and in which direction and by how much prices are expected to
change. This approach requires gathering substantial amounts of
economic data and political intelligence, assessing the expectations
of market participants, and analyzing these information to predict
futures price movement
• · The end goal of performing fundamental analysis is to produce a value
that an investor can compare with the underlying assets current price in
hopes of figuring out what sort of position to take with that
security(under priced = buy, overpriced = sell).
• · Fundamental analysis focuses on cause and effect — causes external
to the trading markets that are likely to affect prices in the market.
These factors may include the weather, current inventory levels,
government policies, economic indicators, trade balances and even how
traders are likely to react to certain events. Fundamental analysis
maintains that markets may misprice a commodity in the short run but
that the "correct" price will eventually be reached.
-Profits can be made by trading the mispriced commodity and then waiting
for the market to recognize its & quot ; mistake & quot ; and correct it.
• · Various Techniques of Fundamental Analysis The Demand-Supply
Framework Price Elasticity The Balance Table Stocks-to-Disappearance
Ratio The Tabular and Graphic Approach The Regression Analysis
Econometric Models Seasonal Price Index
• Market Demand: Market demand represents how much people are
willing to purchase at various prices. Thus, demand is a relationship
between price and quantity demanded, with all other factors remaining
TYPES OF FUNDAMENTAL ANALYSIS
• Although it is generally accepted that the aim fundamental analysis is to
determine the economic value of a security, it is the practice of fundamental
analysis that gives raise to two sub types namely,
• 1. Macro fundamental analysis,
• The top down approach
• 2. Micro fundamental analysis
• The bottom up approach
1. MACRO FUNDAMENTAL ANALYSIS:
• Macro fundamental analysis focuses on broad economic factors that affect
the stock market as a whole or industry groups of securities. This approach is
known as the top down approach of macro fundamental analysis. The practice
of macro fundamental analysis starts at the over all performance of the
economy, its impact on industry groups and finally down to specific
companies in the industry groups.
• It is noteworthy that macro fundamental analysis has a more formal and
structured approach and as such this approach is much favored by
research department of investment management companies and
2. MICRO- FUNDAMENTAL ANALYSIS:
• Micro fundamental analysis starts by considering the current price of a stock
and compares it to measures of value. Hence the current price of stock is
compared to its dividend yield, price to earnings ratio and its price to asset
ratio. The resultant valuation enable comparison to be made amongst stocks
are identified by comparison to the industrial norm. after this phase of
analysis, the micro fundamental analysis attempts to predict industry and
economic developments that may positively or negatively the stocks current
• It is pertinent to note that investment icon such as Benjamin Graham, his
prodigies Warren Buffet, Charles Munger and William Ruane tend toward
Micro fundamental analusis.
The analysis is a 3 layer analysis wherein the analysis of economy, industry and
company is carried out. The logic behind 3 layer is that the performance of the
company depends on the performance of the industry and economy as a whole.
The multitude of factors affecting the intrinsic value of an equity share can be
broadly categorized into 3 factors namely:
1. economic related factors such as growth rate of GDP, industrial growth rate,
inflation, interest rate, government budget and deficit etc.
2. Industry related factors such as demand and supply conditions in the industry,
existence of substitutes, government policy etc. these factors affect only those
companies which belong to a specific industry.
3. Company related factors include financial performance, operating efficiency,
capital structure, competitive edge of the company etc.
fundamental analysis is a structured and formal approach to research on a
stock value and its potential growth. The analytical procedure facilitates the
identification of overvalued and undervalued stocks relatives to their earnings
potential, dividend income potential and to their asset values, against the
backdrop of the economic and the industry environment. On the basis of
research, investment decisions are made such that the odds are stacked in our
of the fundamental analyst.
1st YEAR MFM.
DOS IN COMMERCE.