The document discusses fundamental equity valuation methods. It aims to estimate the intrinsic value of stocks by examining factors like dividend payouts, growth rates, and required rates of return. The author analyzes stocks from RIL and IOC over 5 years using single-period and two-stage growth valuation models. The findings show that dividend payouts and growth rates impact stock prices. The author concludes Indian Oil Corporation Ltd is a better investment based on the analysis.

1. A study on fundamental equity valuation of the
stock
By: Guruprasad Upadhya
131GCMA044
RVIM

2. Fundamental equity valuation
• Equity valuation is to estimate a value for a firm or security.
A method of evaluating a security that entails attempting to
measure its intrinsic value by examining various factors.
• The end goal of performing fundamental analysis is to
produce a value that an investor can compare with the
security's current price, with the aim of figuring out what sort
of position to take with that security (underpriced = buy,
overpriced = sell or short).

3. Statement of the problem
• An investor attempts to determine the worth of their shares
based on the fundamentals, real value of stock and some news
from the media.
• Equity valuation is the most important and needed so as to know
the competitiveness of company with other companies and with
industry benchmark.
• It’s also needed to predict the future prices of the company to
know where the company stands which would help the investor
to make better investing decisions either for long-term period or
for short term period.

4. Objectives of the study
• To study the Stock Market and its functions.
• To identify and evaluate the equity shares of RIL & IOC
• To compare the market performance with that of
selected stocks.
• To know whether the equities are under-priced or over-
priced and to suggest which to buy or to sell or to hold

5. RESEARCH METHODOLOGY
• Analytical and Descriptive research is adopted in the study.
• In this research an information already available, and
analyzed these to make a critical evaluation of the material
• The study is based on the past financial information of the
Five years and
• with the help of current market price of both the stocks
while calculating the future price using model of equity
valuation.

6. RESEARCH METHODOLODY Contd…
Sampling Technique: Judgment sampling techniques is
used for selecting the samples from the NSE Nifty
Data Collection: The secondary data was collected from
nseindia.com
Sample size:
• The stock values are taken for the period of 5 years

7. Single Period Valuation Model
• Po= Current selling price
• P1= Selling price at the end of one year period
• D1= The dividend received during the one year
holding period
• r = Investor’s required rate of return
Po = D1/1+r + P1/1+r

8. Two stage growth model
Constant Growth Model
Po = D1/r-g
Po= Present value of the stock
r = required rate of the return
g = The growth rate
D1=The next year dividend
Po = Current selling price
D1 = Required rate of the return
g1 = Extraordinary growth rate applicable for ‘n’ years
g2 = Normal growth rate applicable after ‘n’ years

9. FINDINGS:
• Valuation of the stocks mainly has an impact of the dividend payout on it.
• The intrinsic value of the stock at times will be lower than the actual
prices of the share due to the present value factor attached with it.
• The intrinsic value of the stock also depends on the dividend declared to
shareholders, if the dividend paid is high then the intrinsic value will be
higher, compared to the one with low dividend.
• If the actual prevailing price of the stock is less than that of Intrinsic
then, its suggested that investor can buy the share and can sell it back
when prices reach its true value. Thus the investor is assured to make a
better profit out of the difference.

10. • SUGGESTIONS:
• It is identified that by the analysis for both the
company’s, RIL gives the good return than the
IOC.
• Investors should be known about company
information and financial related information.
• An investor need to go through the news about
the company and have to specific decision maker.
• According to analysed stocks price might fail
sometimes to meet the expected return of the
company

11. CONCLUSION:
• Through the analysis study concludes that the valuation
of equity ( stock) can be influenced by three factors:
Required rate of return, Expected growth rate and the
Dividend Payout policy of the company and also risk and
return. The valuation of stock has different approaches.
Application of all the approaches in practical is difficult
and thus their results are different. From this analysis it
can be conclude that Indian oil Corporation Ltd is better
company to invest for the investors.