12-10-2012, 10:50 AM
Equity Research: Fundamental and Technical analysis and its impact on stock prices
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INTRODUCTION TO BSE AND NSE
Bombay Stock Exchange Limited is the oldest stock exchange in Asia with a rich
heritage. Popularly known as “BSE”, it was established as “ The Native Share &
Stock Brokers Association ” in 1875. It is the first stock exchange in country to obtain
permanent recognition in 1956 from the Government of India under the Securities
Contracts (Regulation) Act, 1956. The Exchange’s pivotal and pre-eminent role in the
development of the Indian capital market is widely recognized and its index,
SENSEX, is tracked worldwide. Earlier an Association of Persons (AOP), the
Exchange is now a demutualised and corporative entity incorporated under the
provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and
Demutualization) Scheme, 2005 notified by the Securities and Exchange Board of
India (SEBI).
With demutualization, the trading rights and ownership rights have been de linked
effectively addressing concerns regarding perceived and real conflicts of interest. The
Exchange is professionally managed under the overall direction of the Board of
Directors. The Board comprises eminent professionals. Representatives of Trading
Members and the Managing Director of the Exchange. The Board is inclusive and is
designed to benefit from the participation of market intermediaries.
SENSEX – THE BAROMETER OF INDIAN CAPITAL MARKETS
For the premier Stock Exchange that pioneered the stock broking activity in Indian,
128 years of experience seems to be a proud milestone. A lot has changed since 1875
when 318 persons became members of what today is called “The Stock Exchange,
Mumbai” by paying a princely amount of Re1. Till the decade of eighties, there was
no scale to measure the ups and downs in the Indian stock market. The Stock
Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently
became the barometer of the Indian stock market.
First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a
sample of large, liquid and representative companies. The base year of SENSEX is
1978-79 and the base value is 100. The index is widely reported in both domestic and
international markets through print as well as electronic media. The entry and exit of
any specific stock depends on the market capitalization of the top 30 companies in the
market and are from different sectors.
NATIONAL STOCK EXCHANGE
The National Stock Exchange (NSE) is India’s leading stock exchange covering
various cities and towns across the country. NSE was set up by leading institutions to
provide a modern, fully automated screen-based trading system with national reach.
The Exchange has brought about unparalleled transparency, speed & efficiency,
safety and market integrity. It has set up facilities and procedures.
NSE has played a catalytic role in reforming the Indian securities market in terms of
microstructure, market practices and trading volumes. The market today uses state-ofart
information technology to provide an efficient and transparent trading, clearing
and settlement mechanism, and has witnessed several innovations in products &
services viz. demutualization of stock exchange governance, screen based trading,
Professionalisation of trading members, fine-tuned risk management systems,
emergence of clearing corporations to assume counter party risks, market of debt and
derivative instruments and intensive use of information technology. IDBI & other
financial institution with paid equity capital of Rs 25 cores set up NSE. It started
operation in Wholesale debt market in June 1994 & in equity, in Nov 1994.
RATIONALE
The present market scenario has shown us the Boom in Share Market. Even some of
the research firms showed that Share Market is the fastest growing in India.
From last two years share market is in boom. Now it is possible for the investors to
trade from their own place. As compare to last two years there is a growth in the
number of share brokers and market analysts. Media is playing an important role in
these regards. Now the common man is also thinking of some investment in share
market. Too many investors invest their money for the short span, the intention is
speculative.
TECHNICAL ANALYSIS
The methods used to analyze securities and make investment decisions fall into two
very broad categories: Fundamental Analysis and Technical Analysis.
Fundamental analysis involves analyzing the characteristics of a company in order to
estimate its value. Technical analysis takes a completely different approach; it doesn’t
care one bit about the “value” of a company or a commodity. Technicians (some time
called chartists) are only interested in the price movement in the market.
Despite all the fancy and exotic tools it employs, technical analysis really just studies
supply and demand in a market in an attempt to determine what direction, or trend,
will continue in the future. In other words, technical analysis attempts to understand
the emotions in the market by studying the market it self, as opposed to its
components. If you understand the benefits and limitation of technical analysis it can
give you a new set of tools or skills than will enable you to better trader or investor.
DEFINITION
Technical analysis is a method of evaluating the securities by analyzing the statistics
generated by the market activity, such as past price and volume. In technical analysis,
analysts use charts and other tools to identify patterns that can suggest future
activity.
Just as there are many investment styles on fundamental side, there is also much
different type of technical traders. Some rely on chart patterns. In any case, technical
analysts exclusive use of historical price and volume data is what separates them from
their fundamental counterparts. Unlike fundamental analysis technical analysts don’t
care whether a stock is undervalued the only thing that matter is a security’s past
trading data and what information this data can provide about where the security
might move in the future