17-08-2012, 12:25 PM
FUNDAMENTAL ANALYSIS
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ECONOMIC ANALYSIS
The economy is studied to determine if overall conditions are good for the stock
market. Is inflation a concern? Are interest rates likely to rise or fall? Are consumers
spending? Is the trade balance favorable? Is the money supply expanding or contracting?
These are just some of the questions that the fundamental analyst would ask to determine
if economic conditions are right for the stock market.
INDUSTRY ANALYSIS
It is the study of industries which are on the upswing. The ideal investment is the
investment in the growing industries. It is often said that a weak stock in a strong industry
is preferable to a strong stock in a weak industry. In order to make productive
investments the investor should know the industry classification used in the economy. It
is also enviable to know the characteristics, problems and practices in different industries.
The Economic Cycle:
Countries go through the business or economic cycle and the stage of the cycle at
which a country is in has a direct impact both on industry and individual companies. It
affects investment decisions, employment, demand and the profitability of companies.
While some industries such as shipping or consumer durable goods are greatly affected
by the business cycle, others such as the food or health industry are not affected to the
same extent. This is because in regard to certain products consumers can postpone their
purchase decisions, whereas in certain others they cannot.
Political Equation
A stable political environment is necessary for steady, balanced growth. A stable
government is able to take decisions regarding long-term development of the country,
which leads to prosperity of industries and companies. On the other hand, instability
causes insecurity. India has been going through a fairly difficult period. There had been
terrible political instability since the late eighties. Various elections with no majority
power to any one party, religious and ethnic issues, the Pakistan issue etc. lead to
instability in the Government.