Information related to investment management

1. FUNDAMENTAL ANALYSIS
Rohit Kaushik
Assistant Professor

2. FUNDAMENTAL ANALYSIS - MEANING
• It is a logical and systematic approach to estimating the future
dividends and share price.
• It is based on the basic premise that share price is determined by
a number of fundamental factors relating to economy, industry
and company.
• It insists that no one should sell or purchase shares on the basis of
rumours.
• It is also known as EIC framework (economy, industry and
company)

3. ECONOMY ANALYSIS
Performance of company depends on the performance of the
economy. If the economy is booming, demand for goods are
increasing then companies tend to perform well. There are some key
economic variable which we need to look at
• Growth rate of national income
• Inflation
• Interest rates
• Government revenue, expenditure
• Exchange rates
• Infrastructure
• Monsoon
• Economic and political stability

4. INDUSTRY ANALYSIS
An industry is a homogenous group of companies. Industries are broadly
classified on the basis of products like steel industry, pharma industry, textile
industry etc. At any stage in the economy there are some industries which are
fast growing. Performance of the company depends on the state of the
industry to which they belong. Key variables are
• Industry life cycle
• Demand supply gap
• Competitive conditions in the industry
• Permanence
• Labor conditions
• Attitude of Govt.
• Supply of raw material
• Cost structure

5. COMPANY ANALYSIS
It deals with estimation of return and risk of individual shares. It calls
for information. Information can be gathered from two sources
internal and external. Internal source of information is generated by
the company itself and the external source of information is
generated by investment services and financial press. Key variables
are:
• Financial statements analysis: ratio analysis
• Company’s market share
• Capacity utilization
• Modernisation and expansion plans
• Order book position
• Availability of raw material

6. TECHNICAL ANALYSIS
• Technical analysis is the name given to forecasting techniques
that utilize historical share price data.
• A technical analyst concentrates on the movement of share
prices.
• According to technical analysis share prices are determined by
demand and supply forces operating in the market.
• According to technical analysis prices move in trends or waves
which may be upward or downward.

7. DOW THEORY
• According to this theory stock market does not move on a
random basis but is influenced by different cyclical trends. For
example when the market is moving upwards the upward
movement will be interrupted by downward movement or
corrections. These are known as secondary reactions and are not
of importance. Another element is of minor movements which
are day to day fluctuations.

8. DOW THEORY - ASSUMPTIONS
• Primary trend cannot be manipulated.
• Daily prices reflect the emotions of all stock participants.
• The theory is not infalliable.

9. SUPPORT AND RESISTANCE
• Support occurs when price is falling but bounces back every time
it reaches a particular level. When all these low points are
connected by a horizontal line it forms support line.
• Resistance occurs when price is rising but it falls back every time it
reaches a particular level. When all points are connected it forms
resistance line.