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Economic and Industry Analysis

Atul Chandra Pandit Assistant Professor, BIBM

Why do we invest in stock? Expectation of dividend Capital gain Other advantages

Means of Realizing Gain

Trading and Gain

Holding for a long period

Attitude Toward Investment

Risk Taker
Risk Neutral Risk Averse

Types of Analysis

1. Fundamental Analysis(FA)

2. Technical Analysis(TA)

Fundamental Analysis
This approach stresses on the economic conditions, such as the level of employment , economic growth , direction of the changes in the interest rates to determine the value of the securities in the market. This approach also examines a firms earnings capacity, its growth potential, and its sources of finance and the risk factor associated with it.

Technical Analysis

is based on the past market performance of a firms securities. It attempts to identify superior investments by analyzing the price performance and volume of transactions of the a firms securities.

It emphasizes on the price trend in the securities and deviations from the trend.

Fundamental Analysis

Fundamental Analysis (FA)

Economic Analysis Industry Analysis
Company Analysis

Approaches of FA

Top-Down Approach Bottom-Up Approach

Economic Analysis
It involves assessing the general economic

condition of the country in which the investor is going to invest, and; Overall economic condition of the world economy that may affect the economic condition of the country of investment.

Economic Analysis
Assessment of economic condition is necessary as studies shows very strong relationship between the economic condition and the stock market performance

Economic Analysis- Factors

Government Economic Policy
Monetary Policy Fiscal Policy

Economic Analysis- Factors

World Economic events Foreign Trade Exchange Rates

Forex Reserve

Economic Analysis- Factors

Public Attitude

Domestic Legislation

Business Cycles

Economic Analysis- Factors

GDP Growth Rate.

Unemployment Rate

Economic Analysis- Factors

Labor Productivity Interest Rate Inflation

Industry Analysis

What is an Industry?
An industry is a group of companies which produce similar goods and/or services. Example-Pharmaceuticals, Banking, Insurance, NBFI, Textile

Industry Analysis
Industry Analysis is done to select the right industry for investment. Basically an investor wants to get answers of a few questions through the industry analysis.

Industry Analysis- Basic Questions

1. Is there any difference in the returns of the alternative industries during a specific time period?

2. Is the earnings of the alternative industries consistent over time? 3. Is the performance of firms within an industry consistent ?

Industry Analysis- Basic Questions

4.Is there any difference in the alternative industries in terms of risk? 5. Does the risk for an industry vary or does it remains constant?

Industry Analysis- Factors

1. Industry Structures 2. Nature of Competition

3. Industry Demand-Supply
4. Industry Product Quality 5. Cost Elements

Industry Analysis- Factors

6. Government Regulation

7. Exposure to the Business Cycle 8. Financial Norms and Standards

9. Industry Growth Rate 10. Industry Profitability and others

Nature of Competition

Threat of new Entrants

Bargaining Power of Suppliers

Rivalry among existing firms

Bargaining Power of Buyers

Threat of Substitute Products