Unit IISecurity Analysis2Securityanalysisaimedatidentifyingundervaluedsecuritiesto buy and over valued securities to sell.Itinvolvestheentireprocessofestimatingreturnandriskfor individual security.SecurityAnalysisreferstotheanalysisofsecuritiesformthe point of view of their prices, returns and risks.It refers to analysis of trading securities for future investment.Securityanalysishelpstofndouttheintrinsicvalueoractual valueofthesecuritytoknowwhetheritisoverpricedorunder priced.Intrinsicvalueisdeterminedbydiscountingallfutureepected earnings and capital gains with cost of capital rate.S!"U#I$% A&A'%SIS(It is also related to analy)ing di*erent trading securities from the point of view of their prices, returns and risks in order to know prices behavior of securities.Security Analysis is of two types+a, -icro Analysis+ It is related to analysis of one single script of a company.., -acro Analysis+ It is an analysis of various securities or all the securities listed in the securities market. It is also called as analysis of trading securities and reveals various facts of market behavior./ $o estimate the risk and return. $o fnd out the intrinsic value to make a buy0sell decision. $o identify the under valued securities to buy or over value securities to sell. $o analy)e the stock market trends to understand the market pattern and behavior. $o forecast the future earnings and dividends. $o fnd out the key determinants of intrinsic value. $o analy)e and point out the best possible company for investment.1b2ectives of Securities3$o know the value of the security to make, buy or sell decision.$o analy)e various factors such as economic, political, social and their impact on investment.$o forecast epected future returns and capital gains.$o understand market in4uences which will be e*ecting on stock market indices. $o estimate future stock prices by understanding overall forces in the economy.&eed for Security Analysis5"ont..$o predict the national economic conditions, corporate profts.$o establish linkages between economic activity and stock market conditions.$o select right security at right time for right investment.6Securityanalysisdeeplyroutedin fundamentalconceptstomeasurethe risk and return of a security.It is based on fundamentals of economy, industry and company.7ollowing are the broad approaches+8. 7undamental analysis2. $echnical analysis(. !9cientmarkethypothesisor#andom :alk $heoryApproaches to Security Analysis;It is time honored value based approach depending upon a careful assessment of fundamentals of an economy, industry and the company.$hisanalysisstudiesthegeneral economic situation and its impact on industry and the company.Itisaimedatanaly)ingthevarious fundamentalsandbasicfactorsthat e*ecttheriskandreturnofthe securities.7undamental Analysis< $echnicalanalysiseaminesthe technicalitiesofthemarketwith thehelpofpricemovement, depthofthemarket,volumes graphs of price trends etc. Itobservesthatallrelevant factorsre4ectedinthevolumeof thestockechangetransactions and the level of share prices.$echnical Analysis8=Itindicatesthat investorscan outperformandgain theproftsby minimi)ingtherisk thanthemarket epectationsbasedon theirknowledgeable analysisand epertise. !9cient -arket >ypothesis or #andom :alk $heory887undamental analysis is based on the analysis of its three main components.$hese are a. !conomic Analysisb. Industry Analysisc. "ompany Analysis"ompany Analysis82Phase Nature of AnalysisPurposeTools & Techniques7irst !conomy analysis$oassesthegeneral economicssituationof nationaland international!conomic indicatorsSecondIndustry analysis$oreviewprevailing conditionswitha specifc industry audits segments?erformance indicators,andsupply position,competition andgovernment policies$hree phases of 7undamental Analysis8($hird "ompany$oanaly)ethe fnancialandnon@fnancialaspectsofa companyto determine whether to buyorsellorholdof sharesofthe company.1.Non-fnancial analysis+ a. promoters, b. -anagement, c. product Auality d. corporate image andlocation.2. Financial Analysis: !?S, sales, turnovers, proftability, dividends record asset growth etc."ont..8/!conomic AnalysisIteals!ith"ariousecono#icfactors relatin$tonationalaninternationalan their i#pact on "arious inustries.Inthisanalysisthein"estorhastoanaly%e econo#icfactorstoforecasttheecono#ic conitions&$ro!th&itstrensantheir i#pact on the inustry.The econo#ic analysis in"ol"es the analy%in$ the follo!in$ factors83!conomic 7actors'cono#ic $ro!thPopulation $ro!th(onsoon an a$ricultural prouctionInustrial prouctionNatural resourcesA"aila)ility of ra! #aterialsIn*ationary conitionsInterest ratesForei$n e+chan$e rates an forei$n currency eposits,alance of pay#ent positions,u$etary efcit Political sta)ilityPu)lic e)t an forei$n e)t-o#estic sa"in$s an capital for#ation'#ploy#ent opportunitiesTa+ation policyInfrastructural facilities.o"ern#ent policiesInternational e"elop#ents/esearch an e"elop#ental acti"ities'cono#ic inicators 0 National Inco#e'cono#ic refor#sForei$n -irect In"est#ents85Industry AnalysisAn Inustry Is $enerally efne as ho#o$eneous $roup of co#panies.An Inustry is consistin$ of $roup of fr#s proucin$ reasona)ly si#ilar proucts !hich ser"e the sa#e nees of a co##on set of )uyers.The inustries can )e classife into )roa t!o $roups86A. Traitional inustries,. (oern InustriesTraitional InustriesSu$ar& 1otton an 2ute Te+tiles &Iron an steel 1e#ent. (oern InustriesInfor#ation Technolo$y& Phar#aceuticals& /etailin$& 1he#icals& 'n$ineerin$ etc38;1b2ective of Industry AnalysisThe o)4ecti"e of inustry analysis is to ientifythe )est inustrial $roup en4oys national an $lo)al fa"ora)le conitions !hich !ill ha"e e"er increasin$ sales an profts for in"est#ents.8