Fundamental analysis is a method used to evaluate the intrinsic value of a security by examining related economic, financial, and qualitative factors. This analysis involves assessing the overall health and performance of a company, including its financial statements, management team, industry posi...
World over equity stock prices are estimated or predicted using
1. Fundamental Analysis
2. Technical Analysis
Fundamental Analysis
Fundamental Analysis involves analysing a company’s Equity Stock, or any security for that matter, by
determining its intrinsic value.
The major assumption underlying Fundamental Analysis is that you can profit by purchasing
undervalued stock i.e. a stock whose the market price is lower than intrinsic value, because in the long
run stock prices correct themselves to very nearly the intrinsic value of the stock.
Fundamental analysis is more commonly used by long-term investors since their investment strategy is
to identify assets that will increase in value over a long-time frame.
, Equity Stock Markets: Concepts, Instruments, Risks and Derivatives
Prof. P C Narayan
Week 2
Factors determining Intrinsic value
How is this analysis used for taking investment decisions?
If the prevailing market price of the equity stock is greater than its intrinsic value, then the equity
stock of that company is considered to be overvalued and therefore said to be trading at a ‘premium’.
Hence, unless there are definite reasons that can be attributed to the premium commanded by that
equity stock, it would perhaps be appropriate to sell thatstock.
If the market price of the stock is less than the intrinsic value, then the stock is undervaluedand said
, Equity Stock Markets: Concepts, Instruments, Risks and Derivatives
Prof. P C Narayan
Week 2
to be trading at a discount. Hence, unless there are definite reasons that can be attributed to the
discount on the market price, it would be appropriate to buy that stock.
Technical Analysis
Technical Analysts focuses on analysing the trends in the movements in the price of the stockand the
volumes traded over time. The decision to buy or sell the stock is based on an analysisof these trends.
Technical analysts take a short-term view and is used by some segment of investors such as ‘day-
traders’.
Charts used in Technical Analysis
1. Line Chart
It is based on the daily closing price of the stock.
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