Partner With Us

What is fundamental analysis in equity investing

Equity investing could be easy and rewarding if you do your analysis right. How do you decide what stock you want to buy or sell? And most importantly, how do you know if the value of the stock is appropriate? Many factors affect the price of a stock, of which the fundamentals of the company are most crucial.

The intrinsic value of a company’s stock can be measured through fundamental analysis.

Let us first understand what is Fundamental Analysis:

Fundamental analysis is the method of measuring the intrinsic value of a stock to determine whether a stock is valued correctly in the market.

Fundamental analysts carry out the analysis by observing the financial statements, valuation ratio and other qualitative parameters. This is mainly done to find the intrinsic value and a long-term valuation of a stock. However, that’s not all, as fundamental analysis also involves analysing non-financial data like management, industry outlook, government policies, etc.

Factors considered in the process of Fundamental Analysis

Fundamental analysis involves understanding three broad spheres - Economy, industry, and company-specific factors. Economic factors include current economic phase, various economic indicators like interest rate, GDP growth rate, etc. Industry and company-specific factors considered during fundamental analysis include technological development, management and leadership, availability of cash-flow, optimal utilization of resources and other necessary financial parameters

Economic, Industry and company-specific factors can be further classified as Qualitative and Quantitative Factors. Here’s the meaning of the two factors:

Qualitative Factors

Qualitative factors are “fundamentals that cannot be quantified”. It is the analysis of intangible elements such as the quality of the management of the company, their reputation in the market, their business model, corporate governance, etc. These characteristics are highly subjective but are equally critical in helping companies achieve their underlying potential.

Quantitative Factors

Any factor that can be measured with numbers is referred to as a quantitative factor. Quantitative factors mostly deal with financial performances and other business metrics. It involves analysis of financial statements, competition, industry growth, market penetration, among other parameters.

These factors, together with qualitative analysis can give investors a full insight into the anticipated worth of the company in the near future.

Fundamental analysis is one of the two significant methods of market analysis, with the other one being “Technical Analysis.”

Technical Analysis vs. Fundamental Analysis

  • Fundamental analysis is used to identify the intrinsic value of a stock. In contrast, technical analysis is often carried out to identify the right time for entering or exiting the market.
  • Fundamental analysis is usually recommended to a long-term position trader, whereas technical analysis is appropriate for a swing trader or a short-term trader.
  • While technical analysis only analyses the past data, fundamental analysis focuses on both past and future growth prospects.
  • Fundamental analysts predict the future price of a stock based on profitability and the company’s performance in the future. On the other hand, technical analysts predict the future value based on stock charts that helps in identifying patterns and trends, suggesting how the stock could move in the near future.

Benefits of Fundamental analysis

Fundamental analysis is a vital tool that should be used before investing in equity.

The analysis helps investors develop a thorough understanding of the nature of the company’s business. Investors realize the critical revenue and profit drivers behind a company and can better evaluate its relevance in the future. Furthermore, the fundamental analysis provides a long-term view of the market rather than just establishing entry and exit points, as this analysis seeks to assess the value of an asset.

As an investor, one need not become an expert in fundamental analysis. Majority of good broking houses have Research Analysts who research and value stocks basis fundamental analysis. It helps to review and understand these reports before taking a decision. A knowledge about fundamental analysis help in better understanding such reports and stock valuations.

You can reach out to experts or study yourself for more information on fundamental analysis and how it works.

Disclaimer: ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. I-Sec is a SEBI registered Research Analyst having registration no. INH000000990 . The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

Most Popular

  • 27 Sep 2021
  • ICICI Securities

The Five Rules of Investing in Equities

Investment in equity should be made by following certain rules. There are five rules of equity investments. They arise from an understanding of the stock market and mitigate the chances of making mistakes and incurring losses.

  • 27 Sep 2021
  • ICICI Securities

Investment Rules: 5 Thumb Rules of Investing in Market

While you work for money, suitable investments make your money work for you. How you take control of your finances determines the growth of your wealth and additional income streams. Click here to read about the five golden rules you can follow while investing.

  • 15 Sep 2021
  • ICICI Securities

5 Most Popular Reasons for Switching Bank

In the beginning, you would hear from them quite often. But of late, you're noticing more and more signs that it's no longer working. We are referring to your relationship with your bank. Click here to read how to recognize the red flags in your banking relationship and why it might be a good time to end the bond.

  • 15 Sep 2021
  • ICICI Securities

How Intraday Trading Works? Detailed Ideas

Intraday trading in India has been gaining momentum of late. It is no longer the option of only trade pundits.

  • 15 Sep 2021
  • ICICI Securities

What is Intraday trading? A Beginner's Guide

With the advancement of technology and increased knowledge about the stock market, trading is no more a domain dominated by stock pundits.

  • 05 Sep 2021
  • ICICI Securities

Is it Good To Invest in Cyclical Stocks?

Akin to how the pedals of a cycle go up and down as it moves forward, the share price of certain stocks goes up and down in accordance with the economic cycles a country goes through. 

  • 05 Sep 2021
  • ICICI Securities

A primer on Fixed Maturity Plans

If you happen to have some surplus funds which you don’t need for a specific period, but you don’t want to take the risk of investing this money in the stock market, you can very well put this money in a Fixed Maturity Plan or FMP. 

  • 05 Sep 2021
  • ICICI Securities

How to Choose the Best Equity Mutual Fund

You must have heard a lot about investing in mutual funds. But before jumping on this trend you need to assess a mutual fund scheme according to your goals, investment horizon, risk profile, liquidity needs and many other factors to find a suitable match. 

  • 05 Sep 2021
  • ICICI Securities

A Beginner’s Guide to Monetary Policy Tools

The Reserve Bank of India has the incredibly crucial responsibility to formulate the monetary policy. The main objective of monetary policy is to control inflation and provide a conducive environment for the country's economic growth. 

  • 05 Sep 2021
  • ICICI Securities

Buying Penny Stocks and its Risks

There is a specific category of stocks whose prices are very low and they seem to yield exponential returns. But do you know that investment in such stocks could be risky? 

Open an Account

Sign Up for Free


Please use the mobile no registered with Aadhaar.

OTP sent to +91 1234567890

Didn’t received OTP? Resend



Get Research Backed Recommendations.

Download The app now

or Scan below QR Code To download app