FUNDAMENTAL ANALYSIS P.SARAVANAPANDI AP – HBS TRICHY

ECONOMIC ANALYSIS GROWTH RATE OF NATIONAL INCOME – Gross National Product – Net National Product – Gross Domestic Product History Data 10/24/20152SAPM

GNP, GDP, GNP ………..

Economic Cycle or Business Cycle – Depression – Recovery – Boom – Recession 10/24/2015SAPM4

Economic Cycle or Business Cycle Depression – Demand is low – Inflation is high – Interest rate high – Companies reduce production – Shut down plant – Lay off workers Recovery – Economy begins to revive – Demand picks up – Investment increase – Production increase – Employment increase – Profits increase 10/24/20155SAPM

Economic Cycle or Business Cycle Boom – High demand – Investment & production are high – High profits – Boom slows down Recession – Demand slows down – Investment slows down – Production slows down – Employment slows down – Profits slows down 10/24/20156SAPM

ECONOMIC ANALYSIS Inflation – Higher rates upset business plan – Cost escalation – Purchasing power reduces (people) – Lower demand for products – Inflation is measured Wholesale price index(WPI) Consumer price index(CPI) Types of inflation 10/24/20157SAPM

ECONOMIC ANALYSIS Interest rate (IR) – IR determine the cost and availability of credit to the companies – Low IR increases profit – Monetary police & money supply (organized sector) – In an unorganized sector IR will vary based on demand & supply – Long term & short term interest rate 10/24/20158SAPM

ECONOMIC ANALYSIS Government revenue, expenditure and deficits – Government Investment – Government expenditure Increases Jobs,demand Fortunes of many industry Infrastructure Deficit budget 10/24/20159SAPM

Indian Government Expenditure Schedule Interest 8% Pensions 20% Welfare 11% Defense 16% Health care 21% Education 24%

ECONOMIC ANALYSIS Exchange rates – Import and export (world currency) – Devaluation of rupee Exchange rates of rupee is influenced by – Balance of trade deficit The excess of import over export – Balance of payments deficit Net difference payable on account of all trade, services and capital transaction – Foreign reserves Payment for imports, services of foreign debts FER is a strength of the rupee against other currencies. 10/24/201511SAPM

ECONOMIC ANALYSIS Infrastructure – Electricity – Roads and railways – Communication channels Bad Infrastructure leads to – Inefficiencies – Lower productivity, wastage and delay 10/24/201512SAPM

ECONOMIC ANALYSIS Monsoon – Linkages between agriculture and industry Economic and political stability – Steady and balanced growth – Economic policies 10/24/201513SAPM

Indian Monsoon

Dr. Manmohan Singh 22 May 2004 Onwards

ECONOMIC ANALYSIS Economic forecasting – Expected future performance segments – Future direction – National income – GNP Forecasting techniques – It is done only for a short period of years and more than 5 years 10/24/201516SAPM

Forecasting Techniques Short term Anticipatory surveys – Government plan – Peoples expenditure plan Indicator approach / barometric – Leading indicators Avg.weekly hrs of production Avg.weekly initial unemployment No.of new building permits issused Index of S&P 500 stock price Money supply Short term – Coincidental indicators Employees on non agricultural pay rolls Personal income less transfer payments Index of industrial production – Lagging indicators Avg.duration of unemployment Ration of manufacturing and trade inventories to sale Avg.prime rate 10/24/201517SAPM

ECONOMIC ANALYSIS Econometric model building – Econometrics is used – Interrelationship variables – Assumptions in economics – It is complex vast data is required – More Time 10/24/201518SAPM

ECONOMIC ANALYSIS Opportunistic model building – It is used commonly – It know as GNP model building or Sectoral analysis – Existing tax rate, interest rates, rate of inflation …. – Calculation of GNP SELF STUDY 10/24/2015SAPM19