Fundamental Analysis of Stocks in India

The process of fundamental analysis involves examining the economic, financial & other qualitative as well as quantitative factors related to a security so as to determine its intrinsic value. While usually this method is used to evaluate the value of a company’s stock, it can also be used for any kind of security, like bonds or currency.

Fundamental analysis is also known as quantitative analysis and involves delving into a company’s financial statements (such as profit and loss account and balance sheet) in order to study the various financial indicators (such as earnings, liabilities, revenues, expenses and assets). Such an analysis is usually carried out by brokers, analysts, and savvy investors.

Two approaches in fundamental analysis

While carrying out fundamental analysis, investors can use any of the following approaches:

• Top-down approach: In this approach, an analyst investigates both national and international economic indicators, like energy prices, GDP growth rates, inflation and interest rates. The analysis of total sales, price levels and foreign competition in a sector is also done in order to identify the best business in the sector.

   

   

• Bottom-up approach: In this method, an analyst starts the search with specific businesses, irrespective of the industry or region.