Tuesday 13 September 2016
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Understanding Fundamental Analysis | Dhanashri Academy
Stock
Market Fundamentals - Understanding Fundamental Analysis
A lot of people like to talk about getting back to basics
and making stock market investing as simple as possible, so that more people
can feel confident about participating. Although you're probably a little
overwhelmed by all the terminology and strategy that is involved with making
smart decisions in the stock market, it's important to remember that much of
the success that experienced investors enjoy is simply a result of them being
able to restrain their emotion and allow common sense to guide their decision
making. Of course, investors also get a little help from stock market
fundamentals.
If you pay attention to any of the television stock picking
shows, or online analysts, you'll hear them constantly referring to the strong
fundamental attributes of a certain security. It's important for you to know
what they mean by this, and how important stock market fundamentals are in
relation to other attributes, because some analysts will swear that technical
merits of a certain stock are the only thing that matters, and you should just
ignore the fundamentals all together. Although you might find these concepts
foreign to begin with, it's important to remember that they are not solid rules
for trading, just techniques that should be combined into your own strategy.
First of all, it's important for you to realize that when
analysts and fund managers are talking about stock market fundamentals, they
are referring to an element of fundamental analysis, which is the method of
evaluating the market by looking for potentially significant factors that can
affect the value of the stock, outside of its current price movements.
Fundamental analysts don't pay any attention to the trading patterns of the
stock, but are instead concerned with outside influences that might be more or
less predictable.
Researching stock market fundamentals means that you are
concerned with creating an entire profile of the company itself in your mind,
from employee experience to financial history. By assembling all these
potential factors in their rightful place, investors can start to understand a
realistic image of the value that the public and market will associate with the
company's stock. The most important elements that a fundamental analyst will
focus on include: cash flow, potential return on assets, conservative gearing,
the history of profit retention as a basis for funding future growth, and
finally, the soundness of capital management so that shareholder earnings and
returns can be maximized.
TCS Adds To IT Sector Gloom, Shares Slump On Cautious Commentary
Tata Consultancy Services (TCS) shares dropped as much as
6.4 per cent on Thursday, after the Mumbai-based IT major said it is witnessing
"sequential loss of momentum" in the key banking, financial services
and insurance (BFSI) vertical.
"Based on data at the end of August 2016, the company
has characterized customer outlook as one marked by abundant caution, with some
holding back of discretionary spending, particularly in the BFSI vertical in
the US, resulting in sequential loss of momentum," said TCS in a statement
to the Bombay Stock Exchange.
BFSI is TCS' biggest vertical, accounting for over 40 per
cent of revenues. More clarity about TCS' outlook will emerge after India's
biggest outsourcer updates investors on business trends next week, the company
said.
TCS refrained from issuing a profit warning like mid-tier
Mindtree did last week, but the selloff indicates that investors are not
willing to take chances with IT stocks that have been under severe pressure,
following Infosys' downward revision of its sales outlook in July. (Read)
All frontline IT stocks, including HCL Tech (-2.2 per cent),
Tech Mahindra (-2.3 per cent), Infosys (-1.8 per cent) and Wipro (-1.9 per
cent) traded lower, tracking the selloff in TCS.
TCS had outperformed in the June quarter, with constant
currency revenue growth rising 3.1 per cent sequentially and EBIT or operating
margin of 25.1 per cent in Q1. The latest commentary however indicates that TCS
may not do as well in the second quarter, traders said.
"We believe that Q2 growth could be in the 1-2 per cent
range (down from 3.1 per cent in Q1), and a seasonally weak H2 (second half)
could translate into earnings downgrades of 3-4 per cent," said Religare
Securities.
According to Edelweiss Securities, Q2 is a high growth
quarter for TCS and Infosys as both companies clock majority of incremental
revenue in this quarter.
"With lack of momentum in the BFSI vertical
(contributes nearly 40 per cent to revenue) the chances of a strong second
quarter FY17 are dim and will probably drag down TCS' FY17 growth as
well," it added.
Gaurang Shah of Geojit BNP Paribas said TCS' commentary is
not surprising, considering the negative outlook about the IT sector.
India's $150 billion IT sector has come under pressure
because of weak growth in the US and Europe, which together account for 70-80
per cent revenues of big IT companies. Adverse consequences of Brexit have
further added to gloom around the IT sector. (Read)
TCS shares traded 5.3 per cent lower at Rs 2,311.50 as of 3
p.m., underperforming the broader Nifty that was up 0.3 per cent.
What You Need to Know About Technical Analysis of Stocks
If you are planning to invest in the stock market, know that
it is essential to have some background of how this market moves. You can't
just trust your broker to do everything. In fact, you have to know exactly what
you're doing, if you're going to gain anything from your investment. If you're
starting small, the more you should begin educating yourself, and one of the
most important lessons you have to learn is technical analysis of stocks.
What is Technical
Analysis of Stocks?
Technical analysis generally involves looking into the
movements of prices in the market and anticipating how they are likely to
affect prices within a specific timeframe. It is, to some extent, a prediction
of how the market is likely to behave within a certain timeframe. However,
technical analysis is not absolute, meaning; any market prediction can fail.
Technical analysis is typically used to manage accounts in stock, commodities,
futures, forex or any other traded instrument where price is largely dependent
on supply and demand. Some analysts though would also consider volume or open
interest figures as important factors. Price in this context is defined as any
combination of open, high, low or close occurring for a certain security over a
period of time, which can be anywhere from one minute to one year or even many
years.
What Goes Into Stock
Technical Analysis?
It is said that there is no single element that is at the
center of stock market technical analysis. In fact, there could be a
combination of three elements, first of which is price. According to experts,
price is pretty much all that is needed to see a market clearly. It is the one
true representative of how market participants, from traders to fundamental
analysts, think price should be at a particular point. Thus, it forms the sole
basis for predicting future market actions. Second, price can be more scientific
than people think. This has something to do with trends being reliable
indicators of where a market is headed, although they remain unbolted as well.
Third, the way price is moving is always more important than why it is moving
that way. Everybody knows that price is the result of supply and demand, so it
is futile to over-rationalize.
Stock Technical
Analysis and the Bottom-line
A technical analyst may use various principles in analyzing
charts, indicators and other concrete facts that point to a particular market
direction. However, it can all be simplified by going down to the basic
requirements for analysis - the price, where it came from and where it's
headed. Even so, technical analysis in stocks can be more accurately described
as an art rather than a science because it is not exact and therefore, not
foolproof. A prediction may be based on actual price movements, but it will
ultimately hinge on the analyst's perception of such behavior. In other words,
even the evaluation of the best technical analysts in the world are not
infallible because there is no real gauge as to whether or not a prediction is
correct until such time that it proves to be correct or not.
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