Fundamental Analysis of Icici Bank for potential investors.

Authors Avatar

TOPIC – Fundamental Analysis of ICICI Bank Ltd.

Name – Ashwin Kulkarni


INTRODUCTION

The stock market is the most volatile market and is difficult to understand as the weather. Though this does not mean that the markets cannot be predicted but it only means that trends may change without warning, as with weather. The stock markets are characterized by almost all factors, again starting right from weather and ending at the political environment. Effects of one market also causes a spillover into the other and an external cause in one market can lead to the reaction in another market. For instance, it’s been proved that a delayed monsoon in India will create the problems of flooding in the European countries, effecting adversely economies of both the regions. The pulse of the market also depends upon timely exit and entry. For arriving at a correct conclusion reasonable data is required to understand the mechanics of the stock and the industry – vis-à-vis global and local in which the company operates. While a practical long-term view will help reduce risks, marrying the stock on the other hand may totally increase risks.

By going through the Industry Reports, Financials the investor can arm himself with reasonable information about the stocks, which are being tracked by the investor. However, for consistent monitoring of stocks, it is imperative that the investor has limited exposure to the stocks, which are being capable of being tracked by him – a too big a portfolio will divert attention and ultimately harm investor interests.

In the present project an attempt is made to study the importance of fundamental analysis for investors.

SHARES: -

        The companies Act 1956 defines Shares as “a share in the capital of a company and includes stock except where distinction between stock and share is expressed or implied. A share is regarded as property, which can be bought and sold like any other property. It also consists of other rights given by Articles of Association of company.

EQUITY OR ORDINARY SHARES: -                                                        These are those shares, which do not enjoy any special rights in respect of payment of dividend or repayment of capital. The return of capital to equity shareholders is not guaranteed. Also when the company is wound up, capital of equity shareholders is lastly paid, only after all other claims have been paid in full. That is why equity is also called as “The Risk Bearing or Venture Capital.”                         There are two sources of return on equity shares: -

  1. Dividend: -When companies earn sufficient profit, then Board of Directors declares for all shares.
  2. Capital Gain: -Which arises from an increase in the market price of shares, which is generally associated with growth in per share earning.

Benefits of Investments in Equity shares: -

  1. You can earn good rate of dividend or can make better profit on market fluctuation.
  2. Bonus issue: - These are given as free gift to existing shareholders either fully or partly paid up out of accumulated profits.
  3. Existing shareholders can get “Right issue” in case of further issue of capital by company.
  4. Equity shareholders have “Right to vote” in annual general meeting and other rights like call meeting, winding up of the company.
  5. Shareholders get free copy of Annual Report in which details of all business conducted in last year is mentioned.
  6. A share is “Transferable Property”. It can be transferred or transmitted by shareholder to any other person.
  7. Tax Exemption: -As per Income Tax Act, Dividend is not taxable in the hands of shareholders similarly Long Term Capital Gain on shares is exempted up to March 2007.
  8. Liquidity: -Because of large market for share investor can convert his investments into liquid money easily.

What is Fundamental analysis?

Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient. By believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived price discrepancies.

Fundamental analysis is a method used to determine the value of a stock by analyzing the financial data that is 'fundamental' to the company. That means that fundamental analysis takes into consideration only those variables that are directly related to the company itself, such as its earnings, its dividends, and its sales. Fundamental analysis does not look at the overall state of the market nor does it include behavioral variables in its methodology. It focuses exclusively on the company's business in order to determine whether or not the stock should be bought or sold.

In India many traditional people are very risk averse. They are not aware of the investment opportunities in the stock market. They consider stock market as a game of gambling. But the original scenario is quite different. There is no doubt that there are speculators who try to hike the price of a stock artificially. Investing in equities involves high risk and the return on it totally depends on the company’s performance. But investing in the right stock at the right price and holding for a longer time horizon would surely be a better investment.

The reason behind choosing this project is that it provides hands on experience with what goes on in the stock market on a day to day basis. The field of equity research is very vast and one has to look into various aspects of the functioning of the company to get to any conclusion about the possible performance of the company in the market. Investors like warren buffet made a fortune out of investments in the stock market, which is quiet impossible without proper research about the companies. The field of equity research is full of challenges.

The project is done with Anand Rathi Securities Limited a very well known company in the field of stock broking and capital market services sector. This project gave me a chance to get valuable insights from a hoard of vastly experienced people in this field and to get various approaches each one adopts to evaluate various companies. The duration of the project was two months. These two months were not only limited to learning and devoting time towards equity research but it also provided an insight on what various services such broking houses provide and what efforts are required to manage such organizations.

        

Business Overview

Wealth Management

Investment Banking & Corporate Finance

Join now!

Brokerage & Distribution

Reaching out nationwide

  •  Specialist teams providing best-of-breed research, execution and settlement through branches nationwide

  • Licenses
  •  Member, BSE+NSE [Cash & Derivatives]
  •  Depository Participant [CDSL & NSDL]
  •  Member, NCDEX, MCX, NMCE [Commodities Exchanges]
  •  Insurance Brokerage [IRDA]
  •  Member, Dubai Gold & Commodities Exchange [DGCX]
  • MF Distribution [AMFI]

  •  Cutting-edge technology support providing real-time access to clients through a private broadband satellite network, leased links and the internet.

Brokerage & ...

This is a preview of the whole essay