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Portfolio Final Report

Portfolio Final Report

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Published by tanvir5
The Review of the Industrial Policies of Bangladesh
The Review of the Industrial Policies of Bangladesh

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Categories:Types, Research
Published by: tanvir5 on Apr 05, 2009
Copyright:Attribution Non-commercial

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08/26/2012

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Top-Down Analysis of Investment Decision
IntroductionIntroduction
1. Objective of the study
Advocates of the top-down analysis believe that economy, market and the industry effecthave a significant impact on the total returns from individual stocks. Here we haveconducted a top-down analysis of 
Zeal BangIa Sugar Mills Ltd.
and
Shyampur Sugar MillsLtd.
for taking decision regarding investment on the stocks of these companies.
2. Methodology of the study
For making top-down analysis we have used secondary data for the analysis. We havecollected the financial statements from both the companies. Moreover we have followed anas-is process of analysis of the top-down approach. That is a three-step approach hasbeen followed in the analysis.The remaining part of the report has been produced in seven chapters. Chapter 2, 3, 4 and5 describes the basic three step of the top-down analysis. Chapter six demonstrates thefindings of our study followed by the suggestions in chapter seven. The last chapter at theend of the report we have given our decision whether an investor should invest in thesecompanies in the current state of the economy we have assumed.
1
 
Top-Down Analysis of Investment Decision
AnalysisAnalysisof the Economyof the Economy
1. Variables Studied:
For following top down approach we initially consider the aggregate economy and marketand then we put our attention on industry and finally analyze our concerned firm & their stock. Variables considered in the study of the economy are:
GDP
Inflation
Monetary policy
Fiscal policy
Interest rate
2. Outcome of the study:
Gross domestic product (GDP):
GDP is an indicator of the economic activities of a nation. A country is likely to increase itsGDP growth rate as it reflects a positive economic progress of the country. In the last year,the GDP growth rate of Bangladesh was around 6.7%. And this year it is expected to 6.8%or it can be 7%. But ADB has said that for political complicacy, the current GDP would fallto around 6.5%. So we expect that the expected GDP for 2007 would be around 6.8%which is not much deviated from last years GDP. So it will not create significant impact onour valuation process.
Inflation:
If inflation rate is expected to increase or decrease it will have an impact on both the rate of return and the stock price. For an increase in the expected rate of inflation real rate of return of an investor also increases and vice versa. Again it has a positive impact on stockmarket as purchasing power of people increase and they might invest in stock market.
IndicatorsFY01FY02FY03FY04FY05FY06
CPI inflation1.92.84.45.86.57.2
Source: Bangladesh Bureau of statistics
From the above table we see that inflation is expected to grow in the next financial year 2007. As a result of these expectation investors expected rate of return from investment instock market will also increase. Again we can think that for an inflation rate that is expectedto increase, income as well as purchasing power of people will increase. But as demand of sugar will not increase with the increase of income people will use their money either to
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Top-Down Analysis of Investment Decision
invest or to consume other products. So investment may increase in stock market for anincrease in inflation but not necessarily in sugar industry.
Monetary policy:
Bangladesh Bank continued to pursue a cautious restrained monetary policy with thebroader objective of maintaining price stability while supporting the highest sustainable realoutput growth in FY06. As a result there will be less loan able fund for the business firmand they have to incur higher interest rate which will increase their financial expenses anddecrease profitability.
Fiscal policy:
Government prepare budget for a fiscal year which has revenue and expenditure. Itcollects revenue through imposing tax to finance its expenditure. Tax rate of agriculturalindustry is 30% according to income tax Ordinance 1984. Sugar industry belongs to thisindustry. Currently, import of raw sugar is duty free. As a result, firms which import rawsugar from abroad have a lower cost of production as opposed to the domestic producersof sugar that have to incur higher cost of production for VAT. Thus sugar industry has beendivided into two sectors making it a competitive industry.
Interest rate:
There is no direct relationship between interest rate and stock market. Sugar companieshave to take loan as the same rate like the other borrowers of the economy. So thisindustry cannot influence significantly with the changes in interest rate.
3

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