#stock market ofindia

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Equity research involves thorough analysis and research of the companies and its environment. Equity research primarily means analysing the company’s financials and non-financial information, study the dynamics of the sector the company belongs to, competitors of the company, economic conditions etc..

The idea behind equity research is to come up with intrinsic value of the stock to compare with market price and then decide whether to buy or hold or sell the stock.

There are many frameworks/methodologies available for stock selection. You can use fundamental analysis – top-down approach or bottom-up approach – quantitative screens, technical indicators etc., to select stocks.

Fundamental analysis is the process of determining intrinsic value for the p based on the fundamentals that drive its intrinsic value. These values depend on underlying economic factors such as future earnings or cash flows, interest rates, and risk variables. By examining these factors, you can determine intrinsic value of the stock. Investor should buy the stock if its market price is below intrinsic value and do not buy, or sell, if the market price is above the intrinsic value, after taking into consideration the transaction cost.

Investors who prefer doing stock research on fundamental analysis believe that, intrinsic value may differ from the market price but eventually market price will merge with the intrinsic value. An investor or portfolio manager who can do a superior job of estimating intrinsic value will generate above-average returns by acquiring undervalued securities. Fundamental analysis involves economy analysis, industry analysis, company analysis.

Analysts follow two broad approaches to fundamental analysis—top down and bottom up. The factors to consider are economic (E), industry (I) and company (C) factors. Bottom up approach is the Beginning at company-specific factors and moving up to the macro factors that impact the performance of the company.

Scanning the macro economic scenario and then identifying industries to choose from and zeroing in on companies, is the top-down approach. You use EIC framework to understand fundamental factors impacting the earnings of a company, scanning both micro and macro data and information.

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https://investmoneyhub.com/understanding-the-fundamentals-a-comprehensive-guide-to-stock-market-analysis/

Investors approach securities market to invest and disinvest their extra funds. They have predefined features. They are easily liquidifiable. Liquidity means the existence of sellers when one needs to buy and buyers when one needs to sell. Those who seek capital from investors issue equity and debt. These two are broad types of securities for capital funding. Companies issue equity or shares that gives rights to own small percentage of their own companies. Companies issue debt securities to provide the rights of lender to the investors. Both of these securities differ in certain features in claim of the companies.

Equity investors, also called share holders have residual claim in the business because they are owners of company but not lenders. Companies who issue securities from time to time are not liable to repay the amount it receives from shareholders. They are not liable to pay periodic payments to shareholders for the use of their funds like interest payment in case of lenders. If you are equity investors you get voting rights. When we investors get a sizeable amounts of shares in a company they get an opportunity to participate in the management of the business.

Investors make profits out of equity shares by looking for capital appreciation and dividend income. Companies don’t assure to give the both to investors. The choice of giving dividend depends on the decision of management of companies and capital appreciation depends on the conditions of stock market. It’s a trade off when you have to choose between equity and debt. Investors desiring low risk choose debt at the cost of lower stable return. However if you want higher return choose equity investment. Most investors tend to allocate their capital between these two choices depending on the expected return, their investing time period, their risk appetite and their needs.

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The value of money does not remain the same at all points of time. The money available at the present time is worth more than the same amount in the future. Itt has the potential to earn returns (or interest as the case may be).

Consider the following options, assuming there is no uncertainty associated with the cash flow: Receiving Rs.100 now. Receiving Rs.100 after one month. All investors would prefer to receive the cash flow now. Rather than wait for a month, though the amount to be received has the same value. This preference is attributed to the following reasons:

Instinctive preference for current consumption over future consumption.

The Ability to invest the Rs.100 for a month like a bank account or deposit. It earn a return so that it grows in value to more than Rs. 100 after one month. Clearly, Rs.100 available now is not equivalent to Rs.100 received after a month. The value associated with the same sum of money received at various points on the timeline is called the time value of money (popularly known as TVM). The time value of money received in earlier periods as compared to that received in later time periods will be higher. Since most decisions in finance involve cash flows spread over more than one period (monthly, quarterly, yearly etc.). The time value of money is a key principle in financial decision-making.

Present value

Present value is the amount that you would pay today for a cash flow that comes in the future. It brings the future value down to today’s price. It is based on the basic principle of time value of money that value of money keeps reducing as time passes. There are two ways in which the present value can be calculated. If there is a future value that has been given then this can be brought to the present by discounting it by the rate of return. This will give an idea of what the value of the future amount is worth today.

PV = FV/(1+r)^n Where FV= Future Value

PV= Present Value

r = rate of return for each compounding period

n = number of compounding periods For a one time receipt,

PV is calculated as per the following formulae:

PV = C/(1+r)^n

In case of a regular cash flow the present value can be calculated by the following formula

PV = C * ((1-(1/(1+r)^n))/r) Where C is the regular cash flow

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Stock Market:Debt Good or bad

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Stock Market:Return on Equity (ROE)

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Stock market :key indices v 04