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Stock analysis is a method of evaluating and analysing stocks of companies in order to make buying and selling decisions. When you see that an investor is making investing decisions based on a company’s future growth, management, products and market potential of that industry then he/she is doing fundamental analysis. Similarly, when you see a trader make buy or sell call based on some strategies and statistical trends gathered from trading activity, then he/she is doing technical analysis. Here, we will mostly be talking about fundamental analysis of Indian stocks.
Fundamental Analysis is a method of measuring a stock’s intrinsic value(i.e. it’s true value of whether the share is underpriced, overpriced or optimally priced). So, if you are evaluating a business based on its sales, net margins, commitment of the management, future growth prospects, etc. that means you are doing fundamental analysis. Let me tell you a little secret, fundamental analysis is not just confined to a company’s financial numbers but it is more about the strength of the company’s products in the market and the honesty and dedication of the management committee.
1.Understand the company – “Know your circle of competence and stay within it. The size of that circle is not very important, knowing its boundaries however is important”, said the famous investor Mr. Warren Buffett. If you are doing stock research then you must first and foremost understand what you are deciding to put your money into. If you cannot understand it’s business then it is advisable to stay out of it.
2.Do a 3 tier study – The 3 tier study includes market study, industry study and then stock study.
In market study, you try to analyze whether the market, as a whole, is undervalued, overvalued or optimally valued. If you see that market is undervalued you try to find stocks in industries that have good growth potential in the future.
Then you do industry study. In this you try to find out which industry in India is showing bright future prospects and then try to choose the best stocks of that industry.
After you know which industry are you going to bet on, then you do stock study in which you have to choose the cream of that industry, i.e. the best stocks from that industry. To do such stock research, you need to see various parameters such as its financial reports, debt of the company, its past growth performance, it’s future potential by analysing it’s competitors, products management, etc.
There are various websites which give you market data and information about all Indian stocks like their 5yr. sales, margins, cash flows, profits. They also give information like who bought and sold those shares in lots, reports by some rating agencies like CARE, ICRA, etc. You can also use these websites in order to trade by applying strategies and identifying trends in the price charts.
These are some of the stock screeners that can be used for stock research of Indian companies as well as stock market study.
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