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.

The Economy Analysis

The Industry Analysis

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.

Economic indicators

1.GNP - Growth/Decline,
Impact on the stock-Favourable/Unfavourable

2.Price Conditions – Stable/Unstable
Impact on the stock- Favourable/Unfavourable

3.Economy - Boom/Recession
Impact on the stock-Favourable/Unfavourable

4.Housing Construction Activity - Increasing Activity/Decreasing Activity
Impact on the stock-Favourable/Unfavourable


5.Employment - Increase/Decrease
Impact on the stock - Favourable/Unfavourable

6.Accumulation of Inventories
Impact on the stock - Favourable under inflation/Unfavourable under Deflation

7.Personal Disposable Income - Increase/Decrease
Impact on the stock - Favourable/Unfavourable

8.Personal Savings
Impact on the stock - Favourable Under Inflation/Unfavourable under Deflation

9.Interest Rate- Low/High
Impact on the Stock - Favourable/Unfavourable

10.Balance of trade - Positive/Negative
Impact on the stock - Favourable/Unfavourable

11.Strength of the Rupee in Forex market - strong/Weak
Impact on the stock - Favourable/Unfavourable

12.Corporate Taxation (Direct & Indirect) - Low/High
Impact on the stock - Favourable/Unfavourable

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