What information required to perform fundamental analysis?

Part 2 -  Fundamental analysis

information required  to perform fundamental analysis

The biggest part of fundamental analysis involves analyzing the financial statements of company,   In other word you can say it is a quantitative analysis.  This involves looking at Revenue, Expenses, Assets  , Liabilities and all the other financial aspects of a company. Fundamental analysts look at this information to gain insight on a company's past  performance and  forecast future performance.

All the public listed companies in Indian stock exchange  are required to file statements of financial condition on a regular basis. These include  quarterly statement, and an annual statement. Each statement follows a prescribed format to include certain basic information.

Public listed companies are also subject to audits by government agencies that oversee their given industry. Those audits may be either scheduled or random events. The results of a regulatory audit may also be published--interesting reading for a would-be investor.

The Quarter 2 Quarter result  are good places to start your fundamental research, but you’ll likely want to dig deeper into the specifics information For that you’ll need to understand three interrelated types of statements which are very important

1 Balance Sheet

2 Income statement

3 Cash flow statement 

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What is fundamental analysis

What is fundamental analysis

Part 1

What is fundamental analysis?

Fundamental analysis is the foundation of solid investing. It helps you determine the underlying health of a company by examining the business’ core numbers: its income statements, its earnings releases, its balance sheet, and other indicators of economic health. From these “fundamentals” investors evaluate if a stock is under- or overvalued.

Fundamental analysis begins with an individual stock, but it also extends to that company’s larger context. It explores questions like these: 

Is the company competitive within its industry? 

Is that industry growing or shrinking, compared to other sectors?

Shares of companies with strong fundamentals will tend to go up over time, while fundamentally weak companies will see their stock prices fall. This makes fundamental analysis especially valuable to long-term investor

Why conduct fundamental analysis?

• Is the company making a profit consistently? (While this is naturally the most important question for investors, it’s important to consider the answer in a bigger context. A single profitable quarter for a new company might be a fluke. In the same regard, a drop in profitability for an established blue-chip company might just be a temporary setback.)

• Is that profit growing or declining over time?

• Is the company holding its own relative to the competition? Is it a leader in its sector? Is that sector growing or declining in importance to the overall economy?

• Can the company pay its bills adequately? If you were to dismantle the company’s operations today, what would be the intrinsic value of its assets versus the value of its debts?

Fundamental analysis helps you determine if a company is a good or poor investment choice. Imagine you’re a venture capitalist or a bank, who must decide if that company is worthy of a loan or equity investment. How can you evaluate whether this particular company deserves your invest-able capital?

Fundamental analysts consider the following in making their decision whether to invest or not  ?

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What is CPSE ETF

What is CPSE ETF : Central Public Sector Enterprises (CPSE) ETF, which tracks the Nifty CPSE Index, is a concentrated portfolio of 10 stocks ( Maharatna - Navratna-Miniratna )   whose main aim is to help the Government of India (GOI) in disinvesting its stake in a few CPSEs via the ETF route. 
There is an upfront discount of 3.5% ( in earlier 2 issue discunt was 5% ) per cent on the Further Fund Offer (FFO) Reference Market Price to the stocks included in the index. To add on to it, this ETF will get the benefit of Rajiv Gandhi Equity Savings Scheme (RGESS). 

Investment strategy 

The fund will invest into stocks, which are the constituents of Nifty CPSE Index, in the same proportion as the Index. The stocks included in this index must fulfil the following parameters. 


• Be a part of the list of CPSEs published by the Department of Public Enterprise.
• Be Listed at National Stock Exchange of India Ltd (NSE)
• Have more than 55% Government Holding under promoter category.
• Have average Free Float market capitaliza f more than INR 1000 crore for six month period ending June 2013 
  Have paid dividend of not less than 4% including bonus for the seven years immediately preceding or for at least seven out of the eight or nine years immediately preceding are considered as eligible companies as on cut-off date i.e,June 28, 2013 
  
  
• Portfolio analysis 
  The portfolio comprises of 10 Maharatna and Navaratna CPSEs whose weightage in the index are given below. 
  
  
  
  

A careful analysis of the above table and chart shows that ~ 63 per cent of the surplus is concentrated into 3 stocks, i.e. Oil & Natural Gas Corporation, Coal India and Indian Oil Corporation. As far as the sectoral composition goes, around 57.25 per cent of the concentration is into energy which comprises of stocks like Oil & Natural Gas Corporation, Indian Oil Corporation, GAIL (India) and Oil India. On the other hand, metals constitute 20.68 per cent of the total surplus. 

It is interesting to note here that only 3 stocks (Oil & Natural Gas Corporation, Coal India and GAIL (India) are a part of the NIFTY 50 constituting around 3 per cent of the index, while 4 of the stocks (Bharat Electronics, Indian Oil Corporation, Oil India and Power Finance Corporation) are included in NIFTY Next 50. On the other hand, Container Corporation of India is a part of NIFTY 100 while Engineers India and Rural Electrification Corporation are included in NIFTY 200 Index. Hence, we we can safely assume that this is a thematic ETF which is a basket of concentrated large cap stocks from the Public Sector Undertakings (PSU) space. 

Please note that the current issue if Follow-on public issue (2)

Issue open on 15th Mrach 2017 - 17th March 2017 

Issue size 2500 Cr, 

Minimum Investment Rs-5000  thereafter multiple of 1

Discount 3.5 across the category 

CPSE ETF has return of 42% since it's launch of 2014 

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About Initial Public Offerings (IPO)

A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company.

What is Book Building?

SEBI guidelines defines Book Building as "a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built-up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document".

Book Building is basically a process used in Initial Public Offer (IPO) for efficient price discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.

As per SEBI guidelines, an issuer company can issue securities to the public though prospectus in the following manner:

100% of the net offer to the public through book building process

75% of the net offer to the public through book building process and

25% at the price determined through book building.

The Fixed Price portion is conducted like a normal public issue after the Book Built portion, during which the issue price is determined.

The concept of Book Building is relatively new in India. However it is a common practice in most developed countries.

Difference between Book Building Issue and Fixed Price Issue

In Book Building securities are offered at prices above or equal to the floor prices, whereas securities are offered at a fixed price in case of a public issue. In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.

Future prospect of Indian Equity Market Nifty & Sensex

Are you confused about market whether it is BULLISH or BEARISH ??? Read following Data 

    For long we have only been skeptical:

1. 3 yr back Indian Macro was a concern not anymore 

2. Policy logjam was an issue now its too ambitious reforms 

3. Inflation was too high not anymore 

4. Currency was depreciating now despite of USD strength against most currencies INR is steady

5. Forex reserves and oil prices both in or favor 

6. Corporate earnings missing but pockets of success and green shoots visible 

7. Much needed tax reforms underway 

8. Markets have retraced faster on 2 critical accounts in past 1 year 

9. Not too many Nifty stocks at their peak. 

10. Nifty itself available at prices of 2 year back.

The list is not exhaustive though. I'm off the view that a multi year bull run is borne catch it before it's too late. Markets have never become obvious until it's late in the rally.

These media articles are noises we need to take in stride but act maturely.

List of stock in nifty with their Weightage

Full List of CNX Nifty 50 Companies

Sector	Constituents	Weightage (%)
Cigarettes	ITC	6.51
Pharmaceuticals	Cipla	0.95
	Dr. Reddy’s Lab	1.32
	Lupin	1.19
	Sun Pharmaceutical	2.54
	Aurobindo Pharma	0.66
Information Technology	HCL Technologies	1.50
	Infosys	6.44
	TCS	4.00
	Tech Mahindra	1.00
	Wipro	0.99
Cements	ACC	0.42
	Ambuja Cements	0.54
	Grasim Industries	0.93
	UltraTech Cement	1.24
Automobile	Bajaj Auto	1.21
	Bosch	0.62
	Hero MotoCorp	1.34
	Mahindra & Mahindra	1.82
	Maruti Suzuki	2.31
	Eicher Motors	0.95
	Tata Motors	2.93
	Tata Motors Ltd. (DVR)	0.50
Financial Services	Axis Bank	2.63
	Bank of Baroda	0.51
	HDFC	6.61
	HDFC Bank	7.98
	ICICI Bank	5.10
	IndusInd Bank	1.80
	Kotak Mahindra Bank	2.98
	State Bank of India	2.65
	Yes Bank	1.28
Metals	Coal India	1.29
	Hindalco Industries	0.74
	Tata Steel	0.92
Energy	BPCL	1.11
	GAIL (India)	0.66
	NTPC	1.33
	ONGC	1.71
	Power Grid	1.39
	Reliance Industries	5.41
	Tata Power	0.44
Telecom	Bharti Airtel	1.41
	Idea Cellular	0.32
	Bharti Infratel	0.66
Consumer Goods	Asian Paints	1.44
	Hindustan Unilever	1.99
Construction	Larsen & Toubro	3.75
Industrial Manufacturing	BHEL	0.39
Media & Entertainment	Zee Entertainment	0.82
Shipping	Adani Ports and Special   Economic Zone Ltd.        0.78