Page 124 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 4: Fundamental Analysis

the buoyancy in yarn prices is expected to continue giving investors a turnaround for the first Notes
half of the current financial year.

4.1.6 Economy and Industry Analysis

Investment decisions are a part of our economic life, made by almost everybody in different
contexts at different times. The highly subjective nature of such decisions and the varying results
that they offer therefore, necessitate a further study and analysis into the same.
Long regarded as an art, investment decision-making has only recently been considered as
science with an attendant body of literature being developed helping us understand its dynamics.
Investment decision-making is now accepted both as an art as well as a science. Decision-makers
attempt to update themselves on the characteristics of returns securities, which keep changing.
Their understanding needs sustained efforts.

Changes in the management of any particular company or changes in government policy at
macro level can bring about changes in the attractiveness of certain securities. For example,
before 1992-93, the shares of sugar industry in India did not catching the attention of the investing
public. But due to changes in the government policy towards this industry around 1999, sugar
industry shares became quite attractive. Policy changes made by the government related to hike
in the sugar per sold both in open market as well as through public distribution system, increase
in the quantity of sugar for sale in the free market etc. played a very important role in making
the shares of sugar companies attractive. There may be other factors too, that are more specific
to a particular company or industry.
Table 4.2: Opportunities and Threats in the Macro-economic Environment

S. No. Economic Indicator Opportunity Threat
1. Economic cycle stage Boom Recession
2. Gross National Product Growth Decline
3. Employment Increase Decrease
4. Aggregate demand Rise Fall
5. Personal disposable income Increase Decrease
6. House construction Increase Decrease
7. Personnel savings during Increase Decrease
inflation
8. Rate of interest Low High
9. Corporate taxation Low High
10. Balance of trade Positive Negative
11. Rupee in foreign exchange Strong Weak
market
12. Prices Stable Unstable

4.2 Industry Analysis

After conducting an analysis of the economy and identifying the direction it is likely to take in
the short, interim and long-term, the analyst must look into various sectors of the economy in
terms of various industries. An industry is a homogenous group of companies. That is, companies

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