2.

0 Fundamental Analysis
Economic Analysis: does following study

GDP Growth
Inflation
Interest Rates
Exchange Rates

Current account Deficit

Fiscal Deficit
Index of Industrial Production (IIP) data
The macro economic parameters indicate the country progress

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Industry Analysis: Banking

Banking Sector
Every sector has its Non-Performing
analysis includes
own dynamics Assets (NPA)
factors

Current banking
NIM (Net Interest CASA (Current and sector NPA has
Margin) Saving Accounts) reached Rs. 4 lakh
crore
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Company Analysis

Operating
Gross Profit Net Profit EPS
Profit

Debt Equity Liquidity

P E Ratio Order book
Ratio Ratio

Corporate
Governance
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 GDP Growth:- main parameter which shows
the progress of economy in one year. Data is
released by Govt. every 3 months.

Economic
Analysis Inflation & Interest rates:- Inflation is
independent variable while interest rate is
dependent variable. When inflation goes up,
the RBI will increase the interest rates.
When interest rates goes up the economy
slows down as demand and consumption
will go down.
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Economic Analysis
Exchange Rate:- Shows INR-USD equation

Appreciation means economy is strong & foreign inflows coming

Depreciation means economy is weak &foreign outflows

Indian currency is determined by RBI after taking into account total

inflow and outflow of foreign currency
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 Economic Analysis
Current Account Deficit:- Difference between exports & imports

If imports >exports: Current Account Deficit (CAD)

If exports > imports: Current Account Surplus

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Economic Analysis
Current Account Deficit:- Gold is another major thing which india
imports

India imports 850 tonnes of gold every year, highest in the world

Indian household has 25000 tonees of gold

Higher current account deficit means that balance of payment are

weak and foreign exchange payment liabilities would be more

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 Economic Analysis
Fiscal Deficit:-
Foreign Investors: Govt income is the
Difference between
Importance to Fiscal taxes paid by people
Govt Income & Govt
deficit & companies
expenditure

High fiscal deficit is Govt Expenditure is

seen as govt spend on social
inefficient to use issues, health,
public money defence etc
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Economic Analysis
Index of Industrial Production:- IIP index shows the demand in
Index the manufacturing sector. The index is right now at -1.9%

Lower index means that manufacturing demand is low in the

Index economy

High index means that manufacturing demand is high in the

Index economy

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Importance of Economy Analysis
Unless Economy is in good shape the foreign capital will not come

India is labour intensive economy so capital needed to make population

employed

India macro economy fundamentals are strong and hence foreign capital
would keep coming

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Industry Analysis: e.g. Banking Sector

Indian banking sector stocks have become very attractive from valuation pespective

One can buy with long term horizon

Banks ultimately backbone of financial system

Govt trying to sort out the banking system

Long term good bet on buying of banking stocks

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Company Analysis: Factors

Gross Profit:- Total revenue which comes from sales. If gross

profit is falling then it means that product has some fault or we
are targeting wrong market. Ex Tata Nano, the car just could not
be sold so no sales revenue took place

Net Profit:- Most important since it is the opportunity cost of

capital. Stock price will not rise if the net profit is not rising as FII
and Mutual funds will not buy that company shares

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 Company Analysis
Operating Profit
Cash flow coming out of core business activity
Positive means business is working
DLF & Unitech had negative operating cash flows
which means business is bleeding & no income
coming from main operations
EPS
EPS means net profit divided by total number of shares
Important parameter since if EPS does not rise, then FII & Mutual
funds will not buy the shares
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 Company Analysis

• P E Ratio (Price Earnings Ratio) : Valuation ratio.

• Valuation is an art not science.
• It depends on person looking at company what he feels is the value in the
company.
• Two myths: Lower PE is good, Higher PE is bad
• Actually PE depends on sector potential.
• Sectors: IT, Media, telecom, Private banks, bio tech have higher PE ratio
because growth is more
• Sectors like Cement, Steel, Aluminum have lower PE ratio because growth
in these sectors is low
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 Company Analysis
Debt Equity Ratio: Most important ratio post Global
Financial Crisis of 2008.

Lower the ratio, better for the company

• KFA died due to Rs.7000 crore loans

• Reliance Communication had Rs. 39000 crore loan
• clear examples: Debt high, Profit goes for a toss

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Company Analysis
Dividend Payout Ratio: Shows Amount
of dividend paid by the company
Higher the ratio the better for the shareholders
Dividend payment means that company has solid cash to
pay.

Liquidity Ratio: Shows that how much liquid assets are there with company.

This ratio should also be sufficient so that short term payment obligations can be
managed well.

E.g.Shubhiskha stores failed as they had no money to pay salaries to staff

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 Company Analysis

Order Book:- Amount of orders with the company

• Higher the order book means more cash flow with the company in the
future.
• Every 3 months when companies give their results, order book is declared
by management.
Corporate governance: Management honesty which counts.
• We trust Infosys because of Narayan Murthy.
• Honesty of top management key to long term success of the company
 Conclusion

Fundamental analysis is used for Stock Market:

long term investing
Alone stock analysis is not useful would give good returns, if the economy is in
Oone has to analyze Economy & Industry analysis good state
also Indicator of the economy

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 Technical Analysis

Basically answers the question concerned with Entry & Exit used for short term trading
“When to buy and when to sell” time of investing

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 Difference Between TA & FA

Fundamental Analysis Technical Analysis

• Answers Qs: “When to buy and sell”

• Inputs: Price & Volume
• It is for short term trading
Answers Qs: “which Inputs: Balance Sheet, Long Term Investment • Objective: Short Term profit making
shares to buy” P&L, Ratios etc.

Objective: Wealth
Creation

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Three main Tools of Technical Analysis

1. Indicators 2. Moving Averages 3. Candle Sticks

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 Indicators: RSI
Relative Strength Index (RSI):- it is an indicator which gives buy &
sell signal

The signals are given above reading of 70 & below reading of 30

When RSI is above 70 it gives sell signal

When RSI is below 30 it gives buy signal

used for stocks and index trading

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Indicators

Stocastics:- it is an indicator which also gives buy and sell signal

It has upper band and lower band

K line is green in colour and call as fast line

D line is red in colour and called as slow line

When green line cuts the red line from below it is buy indictor

When green line cuts the red line from above it is sell indicator

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Moving Averages

20 day, 50 day, 100 day

Based on closing prices &200 day moving
averages

used to generate buy & identifying support and

sell signal resistance levels

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 Moving Averages

When the short term moving When the short term moving Ex:- when 20 day moving average Ex:- when 20 day moving average
average cuts the long term moving average cuts the long term moving cuts 50 day moving average from cuts 50 day moving average from
average from below it is BUY signal average from above it is SELL signal below it is BUY signal above it is SELL signal

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 Moving Averages
• 200 Day moving average indicates the whether
there stock or index is in BULL run or BEAR run
• If the closing price of the stock or index is
above 200 Day moving average it is called as
Bull Run
• If the closing price of the stock or index is
below 200 day moving average it is called as
Bear run
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Anlaysis of
OHLC
• OHLC refers to Open, High, Low and Close
prices
• Each stock or index has this four prices for
the day
• Open Price is not significant sins it indicates
novice traders
• High price indicates the strength of BULLS
• Low price indicates the strength of BEARS
• Close price indices the price at which the
Investors are willing to take the shares
home

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Candle
formations
• When the close price is greater
than open price then it is GREEN
candle
• When the close price is less than
open price then it is RED candle

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CHARACTERISTICS OF ANALYSIS
ASSUMPTION

THE MARKET DISCOUNTING EVERYTHING

PRICE MOVES IN TRENDS

HISTORY TRENDS TO REPEAT ITSELF

MAJOR CRITICISM: THE MARKET DISCOUNTING EVERYTHING

Only considers price movement

ignores fundamental factors of the company

However, technical analysis assumes that, at any given time, a stock's price reflects everything that has or could affect the company – including
Fundamental factors

Technical analysts believe that the company's fundamentals, along with broader economic factors and Market pshcology are all priced into the
stock, removing the need to actually consider these factors separately.

This only leaves the analysis of price movement, which technical theory views as a product of the supply & demand for a particular stock in the
market.
 price movements are believed to follow
trends.

PRICE This means that after a trend has been

MOVES IN established, the future price movement is

more likely to be in the same direction as

TRENDS
the trend than to be against it.

Most technical trading strategies are

based on this assumption.
 HISTORY TRENDS TO REPEAT ITSELF

Another important idea in technical analysis is that history tends to repeat itself, mainly in terms of
price movement.

The repetitive nature of price movements is attributed to market psychology; in other words,
market participants tend to provide a consistent reaction to similar market stimuli over time.

Technical analysis uses chart patterns to analyze market movements and understand trends.

Although many of these charts have been used for more than 100 years, they are still believed to be
relevant because they illustrate patterns in price movements that often repeat themselves
 1 Not Just for stocks
2 Focus on price

ADVANTAGES 3 Supply, demand, and price action

OF TECHNICAL 4 Support and resistance

ANALYSIS 5 Pictorial price history

6 Assist with entry point

 1 Analyst bias

2 Open to interpretation

3 Too late
WEAKNESS
4 Always another level
OF
TECHNICAL 5 Trader’s remorse
ANALYSIS
6 TA is also useful in controlling risk

7 It is more important to control risk than to maximize

profits!
CHARTS - TYPES
 Charts are the working tools of technical analysts
 A chart gives us a complete picture of a stock’s price history
over a period of an hour, day, week, month or many years. It
has an x-axis (horizontal) and a y-axis (vertical). Typically, the
x- xis represents time; the y-axis represents price. By plotting a
stock’s price over a period of time, we end up with a pictorial
representation of any stock’s trading history.
1)Open-high-low-close chart
2) Candlestick char
- One candlestick pattern
-two candlestick pattern
I. - three candlestick pattern
3) Line chart
4)Point and figure chart
 1. LINE CHART

• formed by connecting the closing prices of a specific cstock or market

over a given period of time.
• Useful for providing a clear visual illustration of the trend of a stock’s
price or a market’s movement.
• Extremely valuable analytical tool which has been used by traders for
past many years.
 2. BAR CHARTS

• Most popular method

• Traders use to see price action in a stock over a given period of time.
• A bar shows the high price for the period at the top & the lowest price at the
bottom of the bar.
• Small lines on either side of the vertical bar serve to mark the opening and
closing prices.
• The opening price is marked by a small tick to the left of the bar; the closing
price is shown by a similar tick to the right of the bar
CANDLESTICK CHART

 Provide visual insight to current market psychology.

 A Candlestick displays the open, high, low, and closing prices in a format similar
to a modern-day bar-chart, but in a manner that extenuates the relationship
between the opening and closing prices.
 Candlesticks don’t involve any calculations.
 Each candlestick represents one period (e.g., day) of data.
 CHART – PATTERN STUDY

SUPPORT AND RESISTANCE

HEAD AND SOULDER(TOP –BOTTOM)

DOUBLE TOP AND BOTTOM

TRIPLE TOP AND BOTTOM

TRIANGLES

CUP AND HANDLE

ROUNDING TOP-BOTTOM
SUPPORT & RESISTANCE

Technical analysts talk about the ongoing battle between the bulls
and the bears or the struggle between buyers (demand) and sellers )

This is revealed by the prices a security seldom moves above

(resistance) or below (support).
 PATTERN STUDY: HEAD & SHOULDERS

Most popular & reliable chart patterns

Reversal chart pattern that when formed, signals that the security is likely to move against the previous trend.

As you can see in Figure 1, there are two versions of the head and shoulders chart pattern.

Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of an upward movement
and signals that the upward trend is about to end.

Also known as inverse head and shoulders (shown on the right) is the lesser known of the two, but is used to signal
a reversal in a downtrend
 • A bullish continuation pattern in
PATTERN STUDY: CUP which the upward trend has paused
but will continue in an upward
& HANDLE direction once the pattern is
confirmed
PATTERN STUDY: DOUBLE TOPS & BOTTOM

Another well-known pattern that signals a trend reversal

most reliable and is commonly used.
patterns are formed after a sustained trend & signal to chartists that the trend is about to reverse.

created when a price movement tests support or resistance levels twice &is unable to break through.

often used to signal intermediate and long-term trend reversals

 PATTERN STUDY: TRIANGLES

Some of the most well-known chart patterns used in technical analysis.

The three types of triangles, which vary in construct & implication, are the symmetrical triangle
ascending & descending triangle

These chart patterns are considered to last anywhere from a couple of weeks to several months.
PATTERN STUDY: TRIPLE TOPS & TRIPLE BOTTOMS

Another type of reversal chart pattern in chart analysis.

These are not as prevalent in charts as head & shoulders & double tops and bottoms, but they act in a similar
fashion.

These two chart patterns are formed when the price movement tests a level of support or resistance three times
and is unable to break through; this signals a reversal of the prior Trend.
PATTERN STUDY: ROUNDING BOTTOM

Referred to as a saucer bottoms a long-term reversal pattern that signals a shift from a downward trend to an
upward trend.

This pattern is traditionally thought to last anywhere from several months to several years.
Thanks

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