Theory of fundamental analysis
Fundamental analysis: Fundamental analysis is ways of scientific analysis as it try to estimate the intrinsic worth of the company. It analysis the basic fundamental criteria of the company like sales, profits, balance sheet studies. It involves assessing short and long term prospects of different industries and companies. It may also involve studying interest levels, capital market conditions and then out for national economy and also the economies of trading partner countries. One of the most important factors of affecting price of a corporate security is the actual/ expected profitability of the issuing company. Fundamental analysis pays …show more content…
It is the integral part of the economy of a country, more so in a free economy like USA and to some extent in a mixed economy like India. After the new liberalized economic policy implementation say after 1991 India is also emerging as a free economy. To get an insight in to the complexities of the stock market, one needs to develop a sound economic understanding and be able to interpret the impact of important economic indicator on stock market.
Important economic analysis indicators:- monsoon,wart,inflasion,foreign exchange reserves public debt and foreign debt, budgetary deficit, domestic savings and capital output ratio, infrastructure. Government policy, interest rate, taxation policy, balance of trade, employement,political situation and international developments are some of the important economic indicators. A favorable monsoon has appositive impact on stock markets.
Key economic indicators:-
There are some indicators to access the Indian economy. Main indicators:-
Rainfall, agricultural production, money supply, corporate profits, saving to investment ratio, credit position, stock market index, unemployment rate and …show more content…
On the other hand, instability causes insecurity, especially if there is the possibility of government being ousted and replaced by another that holds diametrically different political and economic beliefs.
Foreign exchange risk:
This is a real risk and one must be congnizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in devaluation in the home country would make the company’s product more attractive in other country. its would also make imports more expensive and if a company is dependent on import margins can get reduced. On the other hand devaluation in the country to which one export would make the company’s products more expensive and this can adversely impact sales.
Inflation has an enormous effect in the economy. Within the country it erodes purchasing power as a consequence, demand falls if the rate inflation in the country from which a company imports is high then the cost competitiveness of the product finally manufactured. Conversely, if the rate of inflation in the country to which one export if high, the products stability and domestic companies and industries prosper art such