Fundamental Analysis – Complete Guide

Fundamental Analysis is a conservative and non-speculative approach based on the “Fundamentals”. A fundamentalist is not swept by what is happening in Dalal street as he looks at a three dimensional analysis.

1. The Economy Analysis
2. The Industry Analysis
3. The Company Analysis

All the above three dimensions will have to be weighed together and not in exclusion of each other. In this section we would give you a brief glimpse of each of these factors for an easy digestion

1. The Economy Analysis

In the table below are some economic indicators and their possible impact on the stock market are given in a nut shell.

2. The Industry Analysis

Every industry has to go through a life cycle with four distinct phases
i) Pioneering Stage
ii) Expansion (growth) Stage
iii) Stagnation (mature) Stage
iv) Decline Stage

These phases are dynamic for each industry. You as an investor is advised to invest in an industry that is either in a pioneering stage or in its expansion (growth) stage. Its advisable to quickly get out of industries which are in the stagnation stage prior to its lapse into the decline stage. The particular phase or stage of an industry can be determined in terms of sales, profitability and their growth rates amongst other factors.

3. The Company Analysis

There may be situations were the industry is very attractive but a few companies within it might not be doing all that well; similarly there may be one or two companies which may be doing exceedingly well while the rest of the companies in the industry might be in doldrums. You as an investor will have to consider both the financial and non-financial aspects so as to form a qualitative impression about a company. Some of the factors are

• History of the company and line of business
• Product portfolio’s strength
• Market Share
• Top Management
• Intrinsic Values like Patents and trademarks held
• Foreign Collaboration, its need and availability for future
• Quality of competition in the market, present and future
• Future business plans and projects
• Tags – Like Blue Chips, Market Cap – low, medium and big caps
• Level of trading of the company’s listed scripts
• EPS, its growth and rating vis-à-vis other companies in the industry.
• P/E ratio
• Growth in sales, dividend and bottom line

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