preview

Fundamental Analysis Essay

explanatory Essay
1331 words
1331 words
bookmark

Theory of fundamental analysis
 Economic analysis
 Industry analysis
 Company 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…

In this essay, the author

  • Explains fundamental analysis as a non-speculative approach of evaluating equity shares on value based method.
  • Explains that the stock market is an integral part of the economy of a country.
  • Explains that monsoon,wart,inflation,foreign exchange reserves, public debt and foreign debt, budgetary deficit, domestic savings and capital output ratio, infrastructure are some of the important economic indicators.
  • Explains rainfall, agricultural production, money supply, corporate profits, saving to investment ratio, credit position, stock market index, unemployment rate, and inflation.
  • Opines that a devaluation of the currency in the home country would make the company’s product more attractive in other countries, and its would also make imports more expensive.
  • Explains that inflation has an enormous effect on the economy. it erodes purchasing power and costs competitiveness, and domestic companies prosper.
  • Explains that a low interest rate stimulates investment and industry conversely, high interest rates result in higher cost of production and lower consumption.
  • Explains that the level of taxation in a country has direct effects on the economy if tax rates are low, people have more disposable income, and incentive to work harder and earn more.
  • Analyzes how the liberalization policy of the narasimha rao government excited the developed world and foreign companies grew keen to invest in india. the former bjp government in improving the infrastructure grabbed the attention of foreign investors.
  • Explains that india's economy is an agrarian one and is dependent on monsoon economic activity.
  • Explains that technical analysis is simply the study of prices as reflected on price charts. it assumes that current prices represent all known information about the markets.
  • Explains that dow theory is a theory on stock price movements that proved sly basis for technical analysis. it was originally derived for the editorials of charles h.dow (1851-1902) journalist.
  • Explains that bull market is broad upward movement of the market that may last several years, interrupted by secondary reactions, while bear market are long declines.
  • Explains that secondary movement usually retraces from one third to twp third pf the primary trend. it covers a period ranging from days to weeks.
  • Explains that daily fluctuations are important for short-term trading, but are unimportant in analysis of broad market movements as its caused by daily variatio0ns due to local causes and the balance of buying and selling at that particular time.
  • Explains that a bull trend is identified by rallies where each rally exceeds the highest point of the previous rally. the decline ends above the lowest point.
  • Explains that the series of higher highs and higher lows is first brken by a lower low. there are two possible interpretations.
  • Analyzes how each successive rally fails to penetrate the high point of the previous rally. each decline terminates at a lower point than presiding decline.
  • Explains that bear trends start at the end of a bull trend, whereas rally ends with lower peak and then retreats below the previous low.
  • Explains that a stable political environment is necessary for steady,balanced grouth, while instability causes insecurity.

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:
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

Get Access