FUNDAMENTAL ANALYSIS vs. TECHNICAL ANALYSIS: A CHOICE

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FUNDAMENTAL ANALYSIS vs. TECHNICAL ANALYSIS: A CHOICE OFSECTORAL ANALYSIS

1Keerti Gururaj Kulkarni, 2Gururaj Anand Kulkarni1Gogte Institute of Technology, Belgaum

2S.D.M.C.E.T., Dharwad.

ABSTRACTThe paper explores the analytical tools in evaluating sectoral stocks. In particular focus has been set to understand thegenesis of fundamental and technical analysis in evaluating the sectoral stocks. To ascertain this effectively, fundamentaland technical analysis have been carried out among stocks of selected sectors. Further, an effort has been made to develop“stock selection criteria” for stocks of these sectors. Also, the strategies used by the investors in evaluating these sectoralstocks have been analyzed.

KEYWORDS: Fundamental analysis, Technical analysis, Stocks, Scrips.

INTRODUCTIONIndia is one of the fastest growing economies of the world,with an average GDP growth rate of around 7.0% over thelast few years. It has emerged as the world's fastestgrowing wealth creator, thanks to its buoyant stock marketand higher earnings. The name “stock market” whencomes into the mind, everyone has different opinion. Onefeels it is risky to invest in stock market, others mayperceive that it is game of gambling. Many of the investorsmay feel its great opportunity to make profits in the stockmarket. The opinion differs from person to person andinvestor to investor. However, looking into the recenttrends in the stock market of its volatility, if the investorasks himself about why the stock market behaved thisway; the answer is, the factors may be many. One has todevelop a bird’s view over the stock market, and analyzeevery factor with tools and techniques so that he/she maynot go wrong in the investment decisions.One of the tools may be technical analysis which helps tostudy the market action, primarily through the use ofcharts, for the purpose of forecasting future price trends.The movement of the scrip price and its behavior can beexplained in a more illustrative form by using the technicalanalysis. It provides better insight to make decisions onthe stock investments. It considers only the actual pricebehavior of the market or instrument.This paper presents a brief introduction to the stockmarket, fundamental versus technical analysis for theselection of the stocks for better returns. The mainobjective behind the project is to understand theinvestment decisions, when comparing fundamentalanalysis with that of the technical analysis. Further, thecore area of this work focuses on technical andfundamental analysis of 5 sectors, their choices/selectioncriteria, which tells an investor when to buy or sell a share.This work has made use of the secondary data forcalculating the returns, and hence making decisions oninvestments in the stocks. This paper is byproduct of themajor concurrent project carried out in “GUPTAEQUITIES PVT LTD”, Hubli branch. Respondents of

Hubli and Dharwad cities of Karnataka state, India are thesample units of investment for the primary data.

GENESIS OF STOCK MARKET IN INDIAThe origin of the stock market in India goes back to theend of the eighteenth century when long-term negotiablesecurities were first issued. However, for all practicalpurposes, the real beginning occurred in the middle of thenineteenth century after the enactment of the CompaniesAct in 1850, which introduced the features of limitedliability and generated investor interest in corporatesecurities.An important early event in the development of the stockmarket in India was the formation of the native share andstock brokers' Association at Bombay in 1875, theprecursor of the present day Bombay Stock Exchange.This was followed by the formation ofassociations/exchanges in Ahmedabad (1894), Calcutta(1908), and Madras (1937). In addition, a large number ofephemeral exchanges emerged mainly in the buoyantperiods to recede into the oblivion during depressing timessubsequently.Stock exchanges are intricacy inter-woven in the fabric ofa nation's economic life. Without a stock exchange, thesavings of the community, the sinews of the economicprogress and productive efficiency would remainunderutilized. The task of mobilization and allocation ofsavings could be attempted in the olden days by a muchless specialized institution than the stock exchanges. Butas the business and industry expanded, and the economyassumed more complex nature, the need for 'permanentfinance' arose. Entrepreneurs needed money for long termwhereas investors demanded liquidity – the facility toconvert their investment into cash at any given time. Theanswer was a ready market for investments, and this washow the stock exchange came into being.Stock exchange means anybody of individuals, whetherincorporated or not, constituted for the purpose ofregulating or controlling the business of buying, selling ordealing in securities. These securities include;

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(i) Shares, bonds, debentures or other marketablesecurities of alike nature in or of any incorporatedcompany, or other body corporate

(ii) Government securities(iii) Rights or interest in securities

The Bombay Stock Exchange (BSE) and the NationalStock Exchange (NSE) of India are the two primaryexchanges in India. In addition, there are 22 RegionalStock Exchanges. However, the BSE and NSE haveestablished themselves as the two leading exchanges andaccount for about 80 per cent of the equity volume tradedin India. The NSE and BSE are equal in size, in terms ofdaily traded volume. The average daily turnover at theexchanges has increased from Rs 851 crores in 1997-98 toRs 1,284 crores in 1998-99, and further to Rs 2,273 croresin 1999-2000 (April - August 1999). NSE has around 1500shares listed with a total market capitalization of aroundRs 9, 21,500 crores.The BSE has over 6000 stocks listed and has a marketcapitalization of around Rs 9, 68,000 crore. Most keystocks are traded on both the exchanges and hence theinvestor could buy them on either exchange. Bothexchanges have different settlement cycles, which allowinvestors to shift their positions on the bourses. Theprimary index of BSE is BSE Sensex comprising of 30stocks. NSE has the S&P NSE 50 Index (Nifty) whichconsists of fifty stocks. The BSE Sensex is the older andmore widely followed index. Both these indices arecalculated on the basis of market capitalization andcontain the heavily traded shares from key sectors. Themarkets are closed on Saturdays and Sundays. Both theexchanges have switched over from the open outcrytrading system to a fully automated computerized mode oftrading known as BOLT (BSE On Line Trading) andNEAT (National Exchange Automated Trading) System. Itfacilitates more efficient processing, automatic ordermatching, faster execution of trades and transparency; thescrips traded on the BSE have been classified into 'A', 'B1','B2', 'C', 'F' and 'Z' groups. The 'A' group shares representthose, which are in the carry forward system (Badla). The'F' group represents the debt market (fixed incomesecurities) segment. The 'Z' group scrips are theblacklisted companies. The 'C' group covers the odd lotsecurities in 'A', 'B1' & 'B2' groups and Rightsrenunciations. The key regulator governing StockExchanges, Brokers, Depositories, Depositoryparticipants, Mutual Funds, FIIs and other participants inIndian secondary and primary market is the Securities andExchange Board of India (SEBI).

FINANCIAL MARKETThe financial market includes Money market and Capitalmarket. Securities market is an important, organizedcapital market where transaction of capital is facilitated bymeans of direct financing using securities as a commodity.Securities market includes primary and secondary markets.PRIMARY MARKET

The primary market is an intermittent anddiscrete market where the initially listed shares are tradedfirst time, changing hands from the listed company to theinvestors. It refers to the process through which the

companies, the issuers of stocks, acquire capital byoffering their stocks to investors who supply the capital. Inother words primary market is that part of the capitalmarkets that deals with the issuance of new securities.Companies, governments or public sector institutions canobtain funding through the sale of a new stock or bondissue. This is typically done through a syndicate ofsecurities dealers. The process of selling new issues toinvestors is called underwriting. In the case of a new stockissue, this sale is called an initial public offering (IPO).Dealers earn a commission that is built into the price of thesecurity offering, though it can be found in the prospectus.

SECONDARY MARKETThe secondary market is an on-going market, which isequipped and organized with a place, facilities and otherresources required for trading securities after their initialoffering. It refers to a specific place where securitiestransaction among many and unspecified persons is carriedout through intermediation of the securities firms, i.e., alicensed broker, and the exchanges, a specialized tradingorganization, in accordance with the rules and regulationsestablished by the exchanges.A bit about history of stock exchange they say it wasunder a tree that it all started in 1875. Bombay StockExchange (BSE) was the major exchange in India till1994. National Stock Exchange (NSE) started operationsin 1994. NSE was floated by major banks and financialinstitutions. It came as a result of Harshad Mehta scam of1992. Contrary to popular belief, the scam was more of abanking scam than a stock market scam. As per the oldmethods of trading in BSE people assemble on what iscalled a ring in the BSE building. They had a unique signlanguage to communicate apart from all the shoutings.Investors weren't allowed for access, and the system wasopaque and misused by brokers. The shares were inphysical form and prone to duplication and fraud.NSE was the first to introduce electronic screen basedtrading. BSE was forced to follow the suit. The presentday trading platform is transparent and gives investorsprices on a real time basis. With the introduction ofdepository and mandatory dematerialization of shares,chances of fraud reduced further. The trading screen givestop 5 buy and sell quotes on every scrip.A typical trading day starts at 9:15 am ending at 3.30 pm,Monday to Friday. BSE has 30 stocks which make up theSensex. NSE has 50 stocks in its index called Nifty. FIIs,Banks, Financial Institutions, Mutual Funds are the biggestplayers in the market. Also, there are the retail investorsand speculators. The last ones are those who follow themarket from morning to evening; Market can be veryaddictive like blogging though stakes are higher in theformer.

BULL AND BEAR MARKETSThere are two classic market types used to characterize thegeneral direction of the market. Bull markets exist whenthe market is generally rising and typically are theresultant of a strong economy. A bull market is typifiedgenerally by the rising stock prices, high economicgrowth, and strong investor confidence in the economy.Bear markets are the opposite. A bear market is typified by

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falling stock prices, bad economic news, and low investorconfidence in the economy.A key to successful investment during a bull market is totake advantage of the rising prices. For most, this meansbuying securities early, watching them rise in value andthen selling them, when they reach a higher value.However, as simple as it sounds, this practice involvestiming the market. Since no one knows exactly when themarket will begin its climb or reach its peak, virtually noone can time the market perfectly.The opposite of a bull market is a bear market when pricesare falling in a financial market for a prolonged period oftime. A bear market tends to be accompanied bywidespread pessimism. A bear market is slang when stockprices have decreased for an extended period of time. Ifan investor is "bearish" they are referred to as a bearbecause they believe a particular company, industry,sector, or market in general is going to go down.

COMMON UNDERSTANDING OF THEFUNDAMENTAL AND TECHNICAL ANALYSISFundamental analysis is an investing approach where in aninvestor tries to choose winning stocks by studying acompany’s earnings history, balance sheet, management,product line and other factors that will affect itsprofitability and growth.Fundamental analysis seeks to determine future stockprices by understanding and measuring the objective“values” of the equity. Whereas the study of stock charts,known as the technical analysis believes that the pastaction of the market itself will determine the future courseof the prices.Technical analysis has become increasingly popular overthe past several years, as more and more people believethat the historical performance of a stock is a strongindication of the future performance of that stock.People using fundamental analysis have always looked atthe past performance of the company by comparing fiscaldata from previous quarters and years to determine thefuture growth. The difference lies in the technical analyst’sbelief that securities move according to very predictabletrends and patterns. These trends continue until somethinghappens to change the trend, until this change occurs pricelevels are predictable.

DIFFERENCES BETWEEN FUNDAMENTAL ANDTECHNICAL ANALYSIS At the most basic level, a technical analyst approaches

a security from the charts while a fundaments analyststarts with the financial statements

By looking at the balance sheet, cash flow statementand income statement, a fundamental analyst tries todetermine a company’s value. In financial terms, ananalyst attempts to measure a company’s intrinsicvalue. In this approach, investment decisions arefairly easy to make – if the price of a stock tradesbelow its intrinsic value and in such a situation it willresult into a good investment. Although this is anoversimplification, fundamental analysis goes beyondjust the financial statements. Technical traders on theother hand believe that there are no reasons to analyzea company’s fundamentals because these are all

accounted for in the stock’s price. Technicians believethat all the information they need about a stock can befound in its charts.

Fundamental analysis takes relatively a long-termapproach to analyze the market compared to thetechnical analysis. While technical analysis can beused on a timeframe of weeks, days or even minutes,fundamental analysis often looks at data over anumber of years.

Not only is technical analysis of more short term thanfundamental analysis, but the goals of purchase (orsale) of a stock are usually different for eachapproach. In general, technical analysis is used for atrade, whereas fundamental analysis is used to makean investment. Investors buy assets believing that thestock prices may increase in value, while traders buyassets believing that they can sell it to somebody elseat a greater price.

SECTORAL WATCHIT sectorThe performance of the IT sector is bleaker on the profitand profitability fronts. Growth in net profit for the sectorduring the ''March 2009 quarter'' was the slowest sincepast several quarters. This is also true in case ofprofitability of the IT sector. The somber performance hascome on the back of an appreciating rupee and slowergrowth in the BFSI segment. For FY10, though ITcompanies have maintained their ''cautiously optimistic''stand, the guidance given by large and mid-sizedcompanies reflects their confidence in maintaining growth.During the ''June 2009quarter'', depreciation in the rupeeagainst the dollar might have helped companies post bettermargins. As per industry experts, every 1% fall in therupee will improve companies operating profitability byover 30-35 bps.Most IT companies have hedged their future earnings inthe currency forwards market. Companies typically hedge30-75% of their future earnings. This reduces the impactof currency fluctuations on their revenues and profitabilitywhen the rupee is appreciating. But this will result inerosion of profitability when the rupee starts depreciating.Though a depreciating rupee will increase hedging losses,this may be more-than-compensated by gains on theoperational front as companies have flexibility to reworktheir hedging strategies, depending upon the rupee’sfluctuation.Over the long term, the IT sector is set to see moderategrowth, given fattening revenue base of the sector andslowing US economy. This may be reflected in companies'current valuations. IT exporters with a strong businessmodel and ability to take advantage of global sourcingopportunities by relocating their delivery base tide throughthe bad patch. Also, companies that have India-centricstrategies woven through niche market offerings lookpromising. Investors with a horizon of 2-3 years canaccumulate scrip’s of top-tier companies like TCS andInfosys.The Indian information technology (IT) industry hasplayed a key role in putting India on the global map.Thanks to the success of the IT industry; India is now apower to reckon with. According to the National


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Association of Software and Service Companies(NASSCOM), the apex body for software services inIndia, the revenue of the information technology sector hasrisen from 1.2 per cent of the gross domestic product(GDP) in FY 1997-98 to an estimated 5.8 per cent in FY2008-09.India's IT growth in the world is primarily dominated byIT software and services such as Custom ApplicationDevelopment and Maintenance (CADM), SystemIntegration, IT Consulting, Application Management,Software testing, and Web services.Automobile SectorOn the canvas of the Indian economy, automotive industryoccupies a prominent place. Due to its deep forward andbackward linkages with several key segments of theeconomy, automotive industry has a strong multipliereffect and is capable of being the driver of the economicgrowth. A sound transportation system plays a pivotal rolein the country's rapid economic and industrialdevelopment. The well-developed Indian automotiveindustry ably fulfils this catalytic role by producing a widevariety of vehicles: passenger cars, light, medium andheavy commercial vehicles, multi-utility vehicles such asjeeps, scooters, motorcycles, mopeds, three wheelers,tractors etc. Automotive Industry comprises of automobileand auto component sectors, and is one of the key driversof the national economy as it provides large-scaleemployment, having a strong multiplier effect. Being oneof the largest industries in India, this industry has beenwitnessing impressive growth during the last two decades.It has been able to restructure itself, absorb newertechnology, align itself to the global developments, andrealize its potential. This has significantly increasedautomotive industry's contribution to the overall industrialgrowth in the country.Growth Drivers of Indian Automobile Market: Rising industrial and agricultural output Rising per capita income Favorable demographic distribution with rising

working population and middle classurbanization

Increasing disposable incomes in rural agri-sector Availability of a variety of vehicle models, meeting

diverse needs and preferences Greater affordability of vehicles Easy finance schemes Favorable government policies Robust productionAutomobile IndustryOne of the major industrial sectors in India is theautomobile sector. Subsequent to the liberalization, theautomobile sector has been aptly described as the sunrisesector of the Indian economy, as this sector has witnessedtremendous growth. Automobile Industry was de-licensedin July 1991 with the announcement of the New IndustrialPolicy. The passenger car industry was however de-licensed in 1993. No industrial licence is required forsetting up of any unit for manufacture of automobilesexcept in some special cases. The norms for ForeignInvestment and import of technology have also beenprogressively liberalized over the years for manufacture ofvehicles including passenger cars in order to make this

sector globally competitive. At present 100% ForeignDirect Investment (FDI) is permissible under automaticroute in this sector including passenger car segment. Theimport of technology/technological upgradation on theroyalty payment of 5% without any duration limit andlump sum payment of US $ 2 million is also allowed underautomatic route in this sector. With the gradualliberalization of the automobile sector since 1991, thenumber of manufacturing facilities in India has grownprogressively. The cumulative production data for April-January 2010 shows production growth of 23.07 percentover the same period of the previous year.Domestic SalesPassenger Vehicles segment during April-January 2010grew at 25.21 percent. Passenger Cars grew by 24.75percent, Utility Vehicles grew by 21.95 percent and MultiPurpose Vehicles grew by 37.05 percent in this period.The overall Commercial Vehicles segment registeredpositive growth at 30.39 percent during April-January2010 as compared to the same period during the previousyear. Medium & Heavy Commercial Vehicles (M&HCVs)registered growth at 20.58 percent; Light CommercialVehicles grew at 39.66 percent. Three Wheelers salesrecorded a growth rate of 25.77 percent in April-January2010. While Passenger Carriers grew by 32.54 percentduring April-January 2010, Goods Carriers grew at 4.20percent. Two Wheelers registered a growth of 23.74percent during April-January 2010. Mopeds, Scooters andMotorcycles grew by 31.73 percent, 20.56 percent and24.32 percent respectively.ExportsDuring April-January 2010, overall automobile exportsregistered a growth rate of 13.24 percent. PassengerVehicles segment, Three Wheelers and Two Wheelerssegments grew by 33.92 percent, 4.60 percent and 8.84percent respectively in this period. Commercial Vehiclesrecorded growth of - 7.52 percent.Real Estate SectorReal estate is one of the fastest growing sectors in India.Market analysis pegs returns from realty in India at anaverage of 14% annually with a tremendous upsurge incommercial real estate on account of the Indian BPOboom. Lease rentals have been picking up steadily andthere is a gaping demand for quality infrastructure. Asignificant demand is also likely to be generated as theoutsourcing boom moves into the manufacturing sector.Further, the housing sector has been growing at an averageof 34% annually, while the hospitality industry witnesseda growth of 10-15% during 2008. Apart from the hugedemand, India also scores on the construction front. AMcKinsey report reveals that the average profit fromconstruction in India is 18%, which is double theprofitability for a construction project undertaken in theUS. The importance of the Real Estate sector as an engineof the nation’s growth can be gauged from the fact that itis the second largest employer next only to agriculture,and its size is close to US $ 12 billion and grows at about30% per annum. Five per cent of the country’s GDP iscontributed by the housing sector. In the next three to fiveyears this contribution to the GDP is expected to rise to6%.The Real Estate industry has significant linkages withseveral other sectors of the economy and over 250

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associated industries. One Rupee invested in this sectorresults in 78 Paisé being added to the GDP of the State. Aunit increase in expenditure in this sector has a multipliereffect and the capacity to generate income as high as fivetimes. If the economy grows at the rate of 10%, thehousing sector has the capacity to grow at 14% andgenerate 3.2 million new jobs over a decade. The relaxedFDI rules implemented by India last year has invited moreforeign investors, and real estate sector in India isseemingly the most lucrative ground at present. Privateequity players are considering big investments, banks aregiving loans to builders, and financial institutions arefloating real estate funds. Indian property market isimmensely promising and most sought after for a widevariety of reasons.Oil and Natural Gas SectorThe origin of oil & natural gas industry in India can betraced back to 1867 when oil was struck at Makum nearMargherita in Assam. At the time of Independence in1947, the Oil & Gas industry was controlled byinternational companies. India's domestic oil productionwas just 2,50,000 tons per annum and the entireproduction was from one state - Assam.

The foundation of the Oil & Natural Gas Industry inIndia was laid by the Industrial Policy Resolution, 1954,when the government announced that petroleum would bethe core sector industry. In pursuance of the IndustrialPolicy Resolution, 1954, Government-owned National OilCompanies ONGC (Oil & Natural Gas Commission), IOC(Indian Oil Corporation), and OIL (Oil India Ltd.) wereformed. ONGC was formed as a Directorate in 1955, andbecame a Commission in 1956. In 1958, Indian RefineriesLtd, a government company was set up. In 1959, formarketing of petroleum products, the government set upanother company called Indian Refineries Ltd. In 1964,Indian Refineries Ltd was merged with Indian OilCompany Ltd to form Indian Oil Corporation Ltd.By the end of 1980s, the petroleum sector was in the

doldrums. Oil production had begun to decline, whereasthere was a steady increase in consumption, and domesticoil production was able to meet only about 35% of thedomestic requirement. The situation was furthercompounded by the resource crunch in the early 1990s.Government had no money for the development of someof the then newly discovered fields (Gandhar, HeeraPhase-II and III, Neelam, Ravva, Panna, Mukta, Tapti,Lakwa Phase-II, Geleki, Bombay High Final Developmentschemes etc). This forced the Government to go for thepetroleum sector reforms which had become inevitable, ifIndia had to attract funds and technology from abroad intothe petroleum sector.Banking SectorIndia has been considerably shielded from the globalrecession. Firstly, we are not very dependent on theexports for our GDP and have a good consumer base inIndia. Secondly, we are a saving prone economy, unlikewestern economies which are consumption prone. Thirdly,when banks across the world are falling like a pyramid ofplaying cards; we are safe, steady and strong, with ourbanks which have acted like a strong backbone of oureconomy during economic turmoil. And just like the FastMoving Consumer Goods (FMCG) sector, there is

tremendous growth potential in the banking sector,because, firstly the rural masses have the habit of savingand spending only when needed. Secondly, their smallcredit requirements for agriculture, cottage industry andmarriages etc.

Tapping the rural market by banks becomes all themore important, not only for the banking sector, but allother industrial sectors as well. If there is growth in thebanking sector, it benefits the other sectors as well. Bythis, it is meant that in this sector, the trickledown theoryof economic growth or top down approach works, if wekeep the banks at the apex in India Inc. Reasons being, asbanks promote savings in the economy, they speed up thecapital formation and then become the source of finance oftrade and credit for the industry. Then they provide creditto enable entrepreneurs in their ventures, which promotesproduction and employment. This production andemployment generates income; consumption and supplydemand, by increasing the spending power of people. Anda sum total of all these reduces poverty, and providesbetter life.

The unorganized sector of lending is believed to beacting as a problem to the growth impetus in these sectors.In several villages, farmers still go to traditional moneylenders like zamindars for meager sums of a few hundredor thousand rupees, and get into debt trap for their wholelives. As a result, farmer suicides, bonded labor, naxalism,political and social unrest on top of it, poor financialmanagement; which if had been done smartly would havehelped in the economic growth of their own self economy.Thus, future development of India and the growth of IndiaInc. lies in the financial inclusion, by tapping the ruralmarkets through banks. This will not only help corporatesin fulfilling their social responsibilities, but is importantfor fuelling growth in other industries, and to keep theeconomy growing. Truly, there are fortunes at the bottomof pyramid.

ASSUMPTIONS FOR THE ANALYSIS OFSECONDARY DATA Rate of return (ROR) in percentage is calculated on

the basis of buying of the stocks on the first day of themonth, and selling of the stocks on the last day of themonth. It is calculated using the relation, ROR =

100*1

o

o

PPP

, where Po is the buying price and P1

is the selling price. For technical analysis the stock is bought on the day

when its price was the lowest and sold when it wasthe highest. Based on these transactions there are anumber of cycles for the buy and sell of these stocksfor the five sectors.

Holding period for the fundamental analysis isassumed to be one year.

Holding period for the technical analysis is calculatedfrom the difference of the price fluctuating from lowto high. Returns for technical analysis are calculatedon the basis of the time gap from the buy point to thesell point, i.e., how many days a stock was held by theinvestor till it was sold.


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Trade Cycles for all the Stocks under TechnicalAnalysis:

IT sector had 176 cycles in a year. Automobile sector had 187 cycles in a year.

Real Estate sector had 191 cycles in a year. Oil and Natural Gas sector had 181 cycles in a year. Banking sector had 217 cycles in a year.

RESULTS AND ANALYSIS OF SECONDARY DATA

Fundamental vs. Technical AnalysisGraphical representation of the Sectoral stock

movements for the year 2009

IT Sector

Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec-20

0

20

40

54

610

411

29

6

5

42

HCL Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)

For the year ending 2009


-5

0

5

10

15

20

553

8

6

3

42

1

7

6

2

INFOSYS Fundamental analysis Technical analysis

with HP (in days)

Rate

of ret

urn (%

)



-40

-20

0

20

40

48

105

7

25575

38

TCS Fundamental analysis Technical analysis

with HP (in days)

Rat

e of

retu

rn (%

)



0

20

40

6

4

33

7

724

6

553

TECH MAHINDRA Fundamental analysis Technical analysis

with HP (in days)R

ate

of re

turn

(%)



-5

0

5

10

15

20

25

30

35

6

8

52

6

7

4

2

33

1

2

WIPRO Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)


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Automobile Sector

Jan Feb Mar Apr May Jun July Aug Sep Oct Nov Dec

-10

0

10

20

30

40

50

60

2

4

57

8

9

4

6

3

9

3

7

BAJAJ AUTO Fundamental analysis Technical analysis

with HP (in days)

Rat

e of

retu

rn (%

)



0

5

10

15

20

25

30

35

5

4

3

65

6

6

4

53

94

MARUTI SUZUKI INDIA LTD Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)



-10

0

10

20

30

40

50

60

6

5

10

3

7

14

4

6

5

64

TATA MOTORS Fundamental analysis Technical analysis with HP (in days)

Rate

of r

etur

n (%

)



-5

0

5

10

15

20

7

5

4

5

3

5

6

3

4

686

HERO HONDA Fundamental analysis Technical analysis with HP (in days)

Rate

of r

etur

n (%

)



-30

-20

-10

0

10

20

30

40

50

60

56

1

22

21

2

1

74

4

TVS MOTORS Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)


Real Estate Sector


-40

-20

0

20

40

60

80

2

46444

14

5

6

16

1

ANANTRAJ INDUSTRIES LTD Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)



241


-40

-20

0

20

40

60

80

3

4952

5

4

5

6

58

2

DLF Fundamental analysis Technical analysis

with HP (in days)Ra

te o

f ret

urn

(%)



-40

-20

0

20

40

60

80

100

6

4

453

1

5

76

562

HDIL Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)



-20

0

20

40

60

80

100

14

42

65

4

76

674

INDIABULLS REAL ESTATE Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)



-30

-20

-10

0

10

20

30

40

50

60

70

1

4

43

85

4

787

4

2

UNITECH Fundamental analysis Technical analysis

with HP (in days)

Rat

e of

retu

rn (%

)


Oil and Natural Gas Sector


-15

-10

-5

0

5

10

15

20

25

30

4

474

2

46

2

5

36 7

BPCL Fundamental analysis Technical analysis

with HP ( in days)

Rate

of r

etur

n (%

)



-5

0

5

10

15

20

25

30

2534

2

513

2

47

1

2

Castrol India Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)


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-20

-10

0

10

20

30

40

54

2

5

4

6

2

1

6

4

6

8

HPCL Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)



-60

-40

-20

0

20

40

623

49332

4543

Indian Oil Corp Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)



-10

0

10

20

30

40

3242

22

5

28

3

5

2

ONGC Fundamental analysis Technical analysis

with HP (in days)

Rat

e of

retu

rn (%

)


Banking Sector


-20

-10

0

10

20

30

40

746

5

5

642

6

5

63

AXIS BANK Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)



-15

-10

-5

0

5

10

15

20

25

30

243

334

4

46

23

3

HDFC Fundamental analysis Technical analysis

with HP (in days)Ra

te o

f ret

urn

(%)



-10

0

10

20

30

40

50

6 6

4 63

2

6

3

66

54

ICICI Fundamental analysis Technical analysis

with HP (in days)

Rat

e of

retu

rn (%

)



243


-20

-10

0

10

20

30

40

50

2

4

453

2

6

1

6

25

4

IDBI Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)



-10

0

10

20

30

40

50

74

672

3

5

23

5

56

SBI Fundamental analysis Technical analysis

with HP (in days)

Rate

of r

etur

n (%

)


ANALYSIS OF THE RESULTSThe graphs represent the movement of stocks (in terms ofrate of returns) for the IT, Automobile, Real Estate, Oiland Natural Gas, and Banking Sectors respectively fromJanuary to December for the year 2009. Both Fundamentaland Technical analysis have been used for evaluating thestock movements. Holding period of the stocks for thefundamental analysis is assumed to be one year. Holdingperiod of stocks for the technical analysis is calculatedfrom the difference of the price movement from low tohigh, and is depicted in the graph for each month duringthe year 2009. Returns for technical analysis are calculatedon the basis of this holding period. It is clear from boththese analysis that investing in the Real Estate stocks aremore profitable, since they have yielded higher returnsamong all the sectors. Further, one should go for thefundamental analysis as compared to the technical analysisin selecting the stocks, since the overall results indicatehigher returns for the fundamental analysis. This isobvious since the fundamental analysis examines the

company’s financials, its rapport and hence is theappropriate analysis.

ANALYSIS OF PRIMARY DATAPrimary data is collected from about 500 investors.Analysis of the data is depicted pictorially through the piediagrams as shown below;

Investment of equities

28%

16%

10%

20%

26%

IT sectorAutomobile sectorOil and Natural Gas sectorBanking sectorReal Estate

Fig 1. Depicts the opinion of the respondents regarding theinvestment in Equities. It is clear that about 28% of the

respondents invest their equities in Real estate sector.

Awareness of fundamental and technical analysis

25.5%

74.5%

AwareNot aware

Fig 2. Depicts the investors awareness of fundamental andtechnical analysis. It is clear that about 76% of therespondents are aware about the fundamental analysis

I.J.E.M.S., VOL.4(2) 2013:234-246 ISSN 2229-600X

244

Approach towards investment

50%

32%

18%

Aggressive Moderate Conservative

Fig 3. Depicts the opinion of the respondents to describethemselves as to what kind of attribute they specify. It isclear that 50% of the respondents describe themselves tobe more conservative.

Investors source of information for Fundamental Analysis

16%

44%

18%

22%

Company's annual reportStock exchange websiteExpert equity reportIndustry database

Fig 4. Depicts the opinion of the respondents’ sources ofinformation while selecting the stocks in fundamentalanalysis. It is clear that 44% of the respondent’s opinionregarding their choice for selecting stock of fundamentalanalysis as reviewing expert equity report.

Technique of purchasing equity shares

4%

68%

28%

IPO'SSecondary marketsBoth

Fig 5. Depicts the opinion of the respondents’ method ofpurchasing equity shares. It is clear that 68% of therespondent’s purchase equity shares through secondarymarket.

Choice of analysis

36%

64%

Fundamental analysisTechnical analysis

Fig 6. Depicts the opinion of the respondents’ preferencesof both the analysis. It is clear that 64% percent of therespondents prefer fundamental analysis.

Favourable analysis

12%

88%

Fundamental analysisTechnical analysis

Fig 7. Depicts the opinion of the respondents towards theanalysis which has benefited them the most. It is clear that

88% of the respondents are with fundamental analysis.

Investment strategies

22%

14%

28%

36%

Investing in blue chip companiesInvesting in high dividend declaring companiesInvesting in high EPS companiesInvesting in growth oriented companies

Fig 8. Depicts the opinion of the respondents regardinginvestment strategies. It is clear that 36% of therespondents are investing in blue chip companies.


245

Whether stock differs from sector to sector ?

6%

94%

Yes No

Fig 9. Depicts respondents’ opinion of whether stockdiffers from sector to sector. It is clear that 94% of therespondents agree with the statement that stock differsfrom sector to sector.

Preference of sectors

20%

26%

10%

20%

24%

IT sectorAutomobile sectorOil and Natural Gas sectorReal Estate sectorBanking sector

Fig 10. Depicts the Preference of sectors (ranks). It is clearthat 26% of the respondent’s have ranked Real Estate atfirst place.

Technical Vs. Fundamental Analysis

74%

26%

TechnicalFundamental

Fig 11. Depicts the opinion of the investors of Technicalanalysis to be more practical than fundamental analysis.

It is clear that 74% of the respondents denied thestatement.

CONCLUSIONSFundamental and Technical analysis of five sectoral stockshave been carried out. Interpretation of the secondary dataclearly indicates Fundamental analysis to be the mostpreferred analysis in choosing stocks to get higher returns.This is supported by the fact that investors are aware, andare more oriented towards the Fundamental analysis asdepicted from the analysis and interpretation of theprimary data. Also, Real estate stocks have emerged as themost preferred stocks among the five sectoral stockschosen for the cause. This clearly indicates the investorsstrongly believe in the company’s past performance, andits true value.

BIBLIOGRAPHY

1. Investment Analysis & Portfolio Management –Reilly – 8/e Thamson / Cengage Learning

2. Security Analysis & Portfolio Management – Fisherand Jordan , 6/e Pearson, PHI.

3. Investment science – David G.Luenberger. Oxford.

4. Alexander, Sharpe, Bailley – Fundamentals ofInvestment – Pearson/ PHI, 3/e, 2001

5. Portfolio Management – Barua, Verma andRaghunathan (TMH), 1/e, 2003

6. Portfolio Management –S. Kevin – Prentice HallIndia.

7. Reilley & Brown – Investment Analysis & PortfolioMgmt. –Thomson Learning, 7/e, 2004

8. Ranganathan & Madhumathi – Investment Analysis &Portfolio Mgmt. – Pearson, PHI.

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11. Practical Investment Arrangement – Strong –Thomson / Cengage Learning 3/e

12. The Wall Street Journal

13. Stock Exchange websites:www.bse.comwww.nse.comwww.valueresearchonline.com

14 Investment Analysis and Portfolio management –Prasanna Chandra – TMH - 2nd Edition, 2005

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15 Investments – Zvi Bodie, & Mohanty – TMH – 6thEdition, 2005

16 Investment Management – V.K. Bhalla ( S. Chand &Co.)

17 Security Analysis & Portfolio Management, - S. Bhat,Excel Books.

Documents

FUNDAMENTAL ANALYSIS vs. TECHNICAL ANALYSIS: A CHOICE