Financial Management

Fundamental and Technical analysis in Stock Market

The ‘Fundamental analysis’ involves analysing the characteristics of the company to estimate its value. 

Fundamental analysis helps the investor analyse the various fundamental factors such as industrial indicators, economic aggregate, and facts related to companies.

Every investor is interested to know the appropriate timing and best avenue for the investments of funds. The main objective of the fundamental analysis is to find out the intrinsic value of the share.

Intrinsic value is the real value of the share. The intrinsic value is affected by various factors such as profitability, financial performance, prospects, industry scenario and broad economic factors.  Intrinsic value helps investors in making investment decisions. Investors make a comparison between the intrinsic value and prevailing market price of the share. It will help in deciding about the scrip’s to be purchased or sold.

An investor will buy the security if the intrinsic value is greater than the market value (Intrinsic value> market value). On the other hand, investors will sell the stakes if the intrinsic value is less than the market value (Intrinsic value< market price).

To find out the intrinsic value, the fundamental analyst needs to forecast the earnings and dividend from the stock. There are two approaches to fundamental analysis- the top-down approach and bottom down approach. The fundamental analyst often used a top-down approach. This approach is described as an “inverted triangle”.  This analysis starts with economic analysis, then moves to industry analysis, and then finally proceeds to company analysis.

Technical analysis

Technical analysis is a method used to evaluate the securities by analysing the statistics generated by market activity, such as past price and volume. In the technical analysis, the technician does not attempt to measure a security’s intrinsic value but instead use charts and other tools to predict the moments of the share price.

Thus, the use of historical price charts lays the foundation of technical analysis. With time, there are several indicators have been developed to ascertain these moments of the share price. Each indicator has its own strength and weakness. The price of stocks depends on the supply and demand in the marketplace.

Technical analysis helps the investor forecast the security price changes by studying only the market data. Unlike the fundamental analysis, technical analysis does not provide information on whether the stock is undervalued. The technical analysis includes information about the security of past trading data and what information this data can provide about where the security moves in the future.

Show More