A project on

“A STUDY ON FUNDAMENTAL AND TECHNICAL ANALYSIS OF STOCKS”

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 INDEX

SR NO. PARTICULARS PAGE

NO.
1 Introduction of Fundamental And Technical Analysis 7-53
Introduction of Stock market 7-8
Fundamental Analysis 9-17
Technical Analysis 18-37
Difference between Fundamental and Technical Analysis 38-40
Fundamental and Technical Analysis of Reliance Industries 41-50
How to pick stocks for analysis 51-53
2 Review Of Literature 54-57
3 Research Methodology 58-60
4 Data Analysis and Interpretation 61-73
5 Conclusion 74
6 Bibliography 75

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 CHAPTER 1.

1.1 INTRODUCTION TO STOCK MARKET :

The term stock market refers to several exchanges in which shares of publicly held companies
are bought and sold. Such financial activities are conducted through formal exchanges and
via over-the-counter (OTC) marketplaces that operate under a defined set of regulations.

Both “stock market” and “stock exchange” are often used interchangeably. Traders in the
stock market buy or sell shares on one or more of the stock exchanges that are part of the
overall stock market.

1.1.2 HOW THE STOCK MARKET WORKS ?

Stock markets provide a secure and regulated environment where market participants can
transact in shares and other eligible financial instruments with confidence, with zero to low
operational risk. Operating under the defined rules as stated by the regulator, the stock markets
act as primary markets and secondary markets.

As a primary market, the stock market allows companies to issue and sell their shares to the
public for the first time through the process of an initial public offering (IPO). This activity
helps companies raise necessary capital from investors.

A company divides
itself into several
shares and sells some
of those shares to the
public at a price per
share. To facilitate
this process, a
company needs a
marketplace where
these shares can be
sold and this is
achieved by the stock
market. A listed company may also offer new, additional shares through other offerings at a
later stage, such as through rights issues or follow-on offerings. They may even buy
back or delist their shares.

Investors will own company shares in the expectation that share value will rise or that they
will receive dividend payments or both. The stock exchange acts as a facilitator for this
capital-raising process and receives a fee for its services from the company and its financial
partners. Using the stock exchanges, investors can also buy and sell securities they already
own in what is called the secondary market.

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1.1.3 WHAT IS STOCK EXCHANGE ?

A stock exchange is an exchange where stockbrokers and traders can buy and sell securities,
such as shares of stock, bonds and other financial instruments. Stock exchanges may also
provide facilities for the issue and redemption of such securities and instruments and capital
events including the payment of income and dividends. Securities traded on a stock exchange
include stock issued by listed companies, unit trusts, derivatives, pooled investment products
and bonds. Stock exchanges often function as "continuous auction" markets with buyers and
sellers consummating transactions via open outcry at a central location such as the floor of the
exchange or by using an electronic trading platform. For example NSE,BSE

1.1.4 WHAT IS STOCK MARKET INDEX ?

A stock market index - it is a statistical source that measures financial market fluctuations. The
indices are performance indicators that indicate the performance of a certain market segment
or the market as a whole.

A stock market index is constructed by choosing equities from similar companies or those that
match a predetermined set of criteria. These shares are already listed on the exchange and
traded. Share market indexes can be built using a range of variables, including industry,
segment, or market capitalization.

Each stock market index tracks the price movement and performance of the stocks that
comprise the index. This simply means that the success of any stock market index is precisely
proportionate to the performance of the index's constituent stocks. In layman's words, if the
prices of the stocks in an index rise, the index as a whole rises as well.

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1.2 WHAT IS FUNDAMENTAL ANALYSIS ?
Fundamental analysis is a way to avoid short-term information about a company/stock. Every
day there is some news on stocks. While these information may form the basis of trades, not
everyone in the stock market is a trader. Many people believe in long-term investing. They
want to buy and hold stocks.
Fundamental analysis helps you identify attributes of companies. The process of fundamental
analysis will require you to understand a bit of mathematics, business and accounting basics.
Along with this, you will need to have some common sense of how the company operates,
the industry/sector and other things that can be imbibed from various documents.

Fundamental analysis is an extremely comprehensive approach that requires a deep knowledge

of accounting, finance, and economics. For instance, fundamental analysis requires the ability
to read financial statements, an understanding of macroeconomic factors, and knowledge of
valuation techniques. It primarily relies on public data, such as a company’s historical earnings
and profit margins, to project future growth.

1.2.1 DEFINITION

Fundamental analysis is a method of evaluating the intrinsic value of a stock. This form of
analysis combines external events and influences, as well as financial statements and industry
trends. Remember the intrinsic value/fair value of a stock does not change everyday. To
understand what is that fair value, you should take the help of fundamentals, which are what
drives prices up and down.
Fundamental analysis uses three sets of data. One, historical data is used to know things were
earlier. Two, publicly known information about the company including announcements made
by the management, and what others are saying about the company. Three, information that is
not known publicly but is useful i.e. instances of how management handles crises, situations
etc.
Fundamental analysis is a process of understanding the workings of a business at its most basic
i.e. fundamental financial level. This is done by looking at various fundamental indicators and
parameters. Fundamental Analysis of a business helps understand the basic premise on which
the said business rests. Fundamental analysis examines the key ratios of a business in a way to
determine its financial health. So, at the end of the process, you a fair idea of what should be
the price of company's stock. This tells you whether your purchase price was more or less.

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1.2.2 BASICS OF FUNDAMENTAL ANALYSIS
Fundamental analysis involves evaluating a stock by examining various factors to determine
its intrinsic value and potential for long-term success. The basics of Fundamental analysis
include :
Company's structure and revenue: Assess the organisation's overall structure and how it
generates revenue.

 Company's profits over the years: Analyse the company's historical profit trends to
understand its financial performance.

 Revenue growth over the years: Evaluate the consistency and growth of the company's
revenue over time.

 Campany's debt: Examine the level of debt the company holds, as excessive debt can impact
financial stability.

 Corporate governance: Assess the company's governarice practices and the effectiveness
of its leadership.

 Rate of turnover: Evaluate how efficiently the company manages its assets by considering
the rate of turnover.

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1.2.3 SOURCES OF FUNDAMENTAL ANALYSIS

Fundamental analysis uses publicly available financial data to evaluate the value of an
investment. The data is recorded on financial statements such as quarterly and annual reports
and filings like the 10-Q (quarterly) or 10-K (annual). The 8-K is also informative because
public companies must file it any time a reportable event occurs, like an acquisition or upper-
level management change.

For example, you might perform a fundamental analysis of a bond's value by looking at
economic factors such as interest rates and the overall state of the economy. Then, you'd
evaluate the bond market and use financial data from similar bond issuers. Finally, you'd
analyze the financial data from the issuing company, including external factors such as
potential changes in its credit rating. You could also read through the 8-K, 10-Q, 10-K, and
the issuer's annual reports to find out what they are doing, their goals, or other issues.

Fundamental analysis uses a company's revenues, earnings, future growth, return on equity,
profit margins, and other data to determine a company's underlying value and potential for
future growth.

1.2.4 HISTORY
The history of fundamental analysis as a trading mechanism began with Benjamin Graham in
1928. Graham published his first book, Security Analysis in 1934. This book defined the
framework of Value Investment and is now in its fifth edition. Since that time, a great deal of
research focused on specific fundamental measures as key determinants of a securities future
price. The concept of efficiency is central to finance. Mainly, in an efficient financial market
an asset price should be the best possible estimate of its economic value. Fundamental analysis,
in accounting and finance, is the analysis of a business’s financial statements (usually to
analyze the business’s assets, liabilities, and earnings); health; and competitors and markets. It
also considers the overall state of the economy and factors including interest rates, production,
earnings, employment, GDP, housing, manufacturing and management.
Fundamental analysis is performed on historical and present data, but with the goal of making
financial forecasts. There are several possible objectives:

 to conduct a company stock valuation and predict its probable price evolution;
 to make a projection on its business performance;
 to evaluate its management and make internal business decisions and/or to calculate
its credit risk.
 to find out the intrinsic value of the share.

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1.2.5 TYPES OF FUNDAMENTAL ANALYSIS
 Quantitative Analysis : information that can be shown using numbers, figures, ratios, or
formulas
 Qualitative Analysis : rather than a quantity of something, it is its quality, standard, or
nature

1.2.6 QUALITATIVE FUNDAMENTALS TO CONSIDER

The Business Model

What exactly does the company do? This isn't as straightforward as it seems. If a company's
business model is based on selling fast-food chicken, is it making its money that way? Or is it
just coasting on royalty and franchise fees?

Competitive Advantage
A company's long-term success is primarily driven by its ability to maintain a competitive
advantage—and keep it. Powerful competitive advantages, such as Coca-Cola's brand name
and Microsoft's domination of the personal computer operating system, create a moat around
a business allowing it to keep competitors at bay and enjoy growth and profits. When a
company can achieve a competitive advantage, its shareholders can be well rewarded for
decades.

Management
Some believe management is the most important criterion for investing in a company. It makes
sense: Even the best business model is doomed if the company's leaders fail to execute the
plan properly. While it's hard for retail investors to meet and truly evaluate managers, you can
look at the corporate website and check the resumes of the top brass and the board members.
How well did they perform in previous jobs? Have they been unloading a lot of their stock
shares lately?

Corporate Governance
Corporate governance describes the policies in place within an organization denoting the
relationships and responsibilities between management, directors, and stakeholders. These
policies are defined and determined in the company charter, its bylaws, and corporate laws
and regulations. You want to do business with a company that is run ethically, fairly,
transparently, and efficiently. Particularly note whether management respects shareholder
rights and shareholder interests. Make sure their communications to shareholders are
transparent, clear, and understandable. If you don't get it, it's probably because they don't want
you to.

Industry
It's also important to consider a company's industry: its customer base, market share among
firms, industry-wide growth, competition, regulation, and business cycles. Learning how the
industry works will give an investor a deeper understanding of a company's financial health.

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1.2.7 QUANTITATIVE FUNDAMENTALS TO CONSIDER

The Balance Sheet

The balance sheet represents a record of a company's assets, liabilities, and equity at a
particular point in time. It is called a balance sheet because the three sections—assets,
liabilities, and shareholders' equity—must balance using the formula:

Assets = Liabilities + Shareholders' Equity

Assets represent the resources the business owns or controls at a given time. This includes
items such as cash, inventory, machinery, and buildings. The other side of the equation
represents the total financing value the company has used to acquire those assets.

Financing comes as a result of liabilities or equity. Liabilities represent debts or obligations

that must be paid. In contrast, equity represents the total value of money that the owners have
contributed to the business—including retained earnings, which is the profit left after paying
all current obligations, dividends, and taxes.

The Income Statement

While the balance sheet takes a snapshot approach in examining a business, the income
statement measures a company's performance over a specific time frame. Technically, you
could have a balance sheet for a month or even a day, but you'll only see public companies
report quarterly and annually.

The income statement presents revenues, expenses, and profit generated from the business'
operations for that period.

Statement of Cash Flows

The statement of cash flows represents a record of a business' cash inflows and outflows over
a period of time. Typically, a statement of cash flows focuses on the following cash-related
activities:

 Cash from investing (CFI): Cash used for investing in assets, as well as the proceeds
from the sale of other businesses, equipment, or long-term assets

 Cash from financing (CFF): Cash paid or received from the issuing and borrowing of
funds

 Operating Cash Flow (OCF): Cash generated from day-to-day business operations

The cash flow statement is important because it's challenging for a business to manipulate its
cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but

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it's tough to fake cash in the bank. For this reason, some investors use the cash flow statement
as a more conservative measure of a company's performance.

1.2.8 RATIOS CONSIDERED IN FUNDAMENTAL ANALYSIS

 Earnings per share (EPS): A company's profit divided by the number of outstanding shares.

 Price-to-earnings ratio (P/E ratio): A company's stock price divided by its EPS. This ratio
helps investors assess whether a stock is overvalued or undervalued relative to its earnings.

 Price-to-book ratio (P/B ratio): A company's stock price divided by its book value per share.
This ratio compares the market value of a company to its book value, which is the value of
its assets minus its liabilities.

 Dividend yield: The annual dividend payment per share divided by the stock's price.

STOCK VALUATION MODELS

1.2.9 IMPORTANCE OF FUNDAMENTAL ANALYSIS

Fundamental analysis are one of the most reliable methods for making long-term predictions.
Analysts often use this, along with technical analysis, to form better financial and investment
decisions. Technical analysis can be more useful for short-term predictions, as day traders and
swing traders usually rely on this method while trading. They may focus less on fundamental
analysis. Contrarily, investors or long-term investors find fundamental analysis as a reliable
tool to identify future business potential and assist decision-making. Fundamental analysis
can prevent investors from making hasty decisions that may not turn out to be lucrative in the
long run.

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This method also helps in identifying the new and upcoming businesses or companies that
may have the potential to grow in the long term and deliver excellent returns. Analysts can
assess whether a stock is currently trading at its fair price or if it is higher or lower.
Fundamental analysis help analysts to identify any potential risks in the foreseeable future. If
they do professionally, they can identify these issues and also strategies viable solutions to
evade them.

1.2.10 HOW TO CONDUCT FUNDAMENTAL ANALYSIS

Before doing fundamental analysis, it may be a good idea to read up some educational material
or books related to this subject so that you can understand the process and approaches in-depth.
Here are some steps you can follow to do a thorough fundamental analysis of a company or
stock:

Get familiar with the company : If you are considering a certain company for long-term
investment, first try to study it in as much detail as possible. Go through the website, learn
about its product, market, how it has been performing, its future goals and past decisions. Once
you know as much as possible about the business, you are going to be in a better position to
evaluate the other variables.

Read the financial reports : After gaining a full understanding of the company, you may look
into the financial reports, such as the balance sheets, profit-and-loss statements, operating costs,
cash flow, revenue and expenses. Check whether the net profit has been on the rise in the past
five years. If this is so, then it is a positive sign. You may also calculate the compounded annual
growth rate (CAGR). You can find financial reports of a company in trading and investing
platforms online.

Check the debt : Debt can impact the growth potential and performance of a company
negatively. It is advisable to refrain from investing in companies that have high debt, as this
can affect the returns. The ideal debt-equity ratio is less than one. Look for a company with
this debt-equity ratio for safer investments.

Study the competitors : Competition is an important factor in determining whether a company

can scale and grow as effectively as it aims to. If the competitors have a better reputation in the
market and produce better quality products, the chances of the company succeeding can be
less. It is better to go with a company that has already established itself as a leader in the market
and that enjoys a better reputation than its competitors.

Analyse the future prospects : Some products are seasonal and may even lose their
significance with time. Others can be evergreen products or they may have a use for customers
regularly in the foreseeable future. Analyse these aspects to see if the company has the potential
to grow and sustain itself in the long run. Diminishing product values results in decreasing
stock values.

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Review all aspects periodically : Micro-and macroeconomic changes can affect the prices and
valuation of companies. The occurrence of new events and the innovation of technology can
make certain products obsolete or enhance their existing value. This makes it important to
remain aware of the current happenings, read industry-relevant news and follow the company
closely. This can help you plan to hold or sell your investments.

1.2.11 ADVANTAGES OF FUNDAMENTAL ANALYSIS

Broad Class of Information: Using this methodology makes an investor well-equipped with
relevant information about a particular company. A thorough analysis involves the use of
internal and external sources of information including financial statements, corporate filings,
publicized business strategies, market research, news involving businesses and the economy,
and macroeconomic indicators.
Thorough Company Evaluation: There are specific benefits to thoroughly evaluating
companies using different sources of market information. These include recognizing the
growth potential of a particular company or if it has already reached its peaked performance.
Furthermore, through thorough research, an investor can also evaluate the quality of his or her
portfolio of stocks and corporate bonds.
Ideal For Long-Term Investors: Another notable advantage of fundamental analysis is that
it is suitable for investors with long-term investment horizons. These investors are either
into growth investing or value investing. It can also be used as part of a defensive investing
strategy because it can help in determining defensive companies. It helps in determining
the type of stock a particular company issues.
Determining Valuation Level: This methodology can also help in determining if the stock of
a particular company is either overvalued or undervalued and if its valuation makes it either
a growth stock, a value stock, or a speculative stock. Recognizing the valuation level of a
company relative to its true valuation aids further in making informed investment decisions
and specific investment strategies.
Management of Investment Risks: Another advantage of fundamental analysis is that can
help in managing risks in several ways. Remember that it provides a comprehensive
understanding of the internal and external situations and factors affecting the performance of a
particular company. It can also help in portfolio diversification by aiding in the selection of
different companies with different fundamentals.

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1.2.12 DISADVANTAGES OF FUNDAMENTAL ANALYSIS

Requires Substantial Efforts: Remember that a comprehensive analysis of the fundamentals

of a particular company requires the use of different sources of market information. This can
consume too much time. An investor needs to find, collect, and analyse financial statements,
management capabilities and direction, economic trends, and specific trends in sectors and
industries.

Subjective Interpretations: The quality of fundamental analysis is also dependent on the

skills of the particular analyst. The results are also based on individual interpretation and bias.
Different analysts can have different opinions and recommendations on the same
company. These can lead to confusion due to different conclusions about the current standing
and prospects of a particular company.

Predictions Are Not Guaranteed: Previous and even the most recent data about the
performance of a company and its external environment are not absolute indicators of
favourable results in the future. Some situations and factors cannot be predicted by fundamental
analysis. Examples include developments in the political and geopolitical landscape and the
emergence of disruptive businesses or products.

Limitations of Applications: Another disadvantage of fundamental analysis is that its

application is limited to the stock market and the bond market. It is not applicable to other
assets and securities that do not have financial data and relevant economic factors that can be
analysed. Examples include commodities and cryptocurrencies. It is also not effective in
volatile markets and emerging markets.

Unsuitable for Short-Term Investing: It is important to reiterate that this methodology

focuses on long-term prospects and it is ideal for long-term growth and value investing. It
ignores short-term fluctuations in the market or the specific value of a particular asset. This
means that it is inapplicable to investors with short-term investment horizons and traders with
shorter holding periods.

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1.3 INTRODUCTION OF TECHNICAL ANALYSIS

Technical analysis is the practice of using historical data and current price action to predict
future price movements. Technical analysis uses price charts to identify signals and patterns
that provide a lens into market psychology. Technical traders aim to benefit from this analysis
by catching trend reversals and riding price momentum.

This analysis is significantly different from fundamental analysis, which is a longer-term

analysis evaluating the financial strength and growth prospects of a company. While
fundamental analysis can be more beneficial for long-term investing, technical analysis is
helpful for timing entries, exits, and shorter-term trades. Together, technical and fundamental
analysis can be coupled to create a trading strategy geared towards providing alpha.

1.3.1 DEFINITION

Technical analysis is a tool or process that uses market data to forecast securities' likely future
price movement - such as a stock or currency pair.

Technical analysis is a trading methodology used for assessing the investments made. It helps
to determine the trading prospects by examining statistical trends collected from trading
activity. It assesses the value of a security on the basis of business results such as sales and
earnings. It also provides a keen focus on the study of volume and price.

1.3.2 HISTORY

The principles of technical analysis are derived from hundreds of years of financial
market data.[6] Some aspects of technical analysis began to appear in Amsterdam-based
merchant Joseph de la Vega's accounts of the Dutch financial markets in the 17th century. In
Asia, technical analysis is said to be a method developed by Homma Munehisa during the early
18th century which evolved into the use of candlestick techniques, and is today a technical
analysis charting tool.[7][8]

Journalist Charles Dow (1851-1902) compiled and closely analysed American stock market
data, and published some of his conclusions in editorials for The Wall Street Journal. He
believed patterns and business cycles could possibly be found in this data, a concept later
known as "Dow theory". However, Dow himself never advocated using his ideas as a stock
trading strategy.

In the 1920s and 1930s, Richard W. Schabacker published several books which continued the
work of Charles Dow and William Peter Hamilton in their books Stock Market Theory and
Practice and Technical Market Analysis. In 1948, Robert D. Edwards and John Magee
published Technical Analysis of Stock Trends which is widely considered to be one of the
seminal works of the discipline. It is exclusively concerned with trend analysis and chart
patterns and remains in use to the present. Early technical analysis was almost exclusively the

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analysis of charts because the processing power of computers was not available for the modern
degree of statistical analysis. Charles Dow reportedly originated a form of point and figure
chart analysis. With the emergence of behavioural finance as a separate discipline in
economics, Paul V. Azzopardi combined technical analysis with behavioural finance and
coined the term "Behavioural Technical Analysis".[9]

1.3.3 BASIS OF TECHNICAL ANALYSIS

 The market discounts everything.

 Price moves in trends.
 History tends to repeat itself.

The Market Discounts Everything

A major criticism of technical analysis is that it only considers price movement, ignoring
the fundamental factors of the company. However, technical analysis assumes that, at any
given time, a stock's price reflects everything that has or could affect the company -
including fundamental factors. Technical analysts believe that the company'sfundamentals, al
ong with broader economic factors and market psychology, are allpriced into the stock,
removing the need to actually consider these factors separately. This only leaves the analysis
of price movement, which technical theory views as a product of the supply and demand for a
particular stock in the market.

Price Moves in Trends

In technical analysis, price movements are believed to follow trends. This means that after a
trend has been established, the future price movement is more likely to be in the same direction
as the trend than to be against it. Most technical trading strategies are based on this assumption.

History tends to repeat itself.

Another important idea in technical analysis is that history tends to repeat itself, mainly
interms of price movement. The repetitive nature of price movements is attributed tomarket p
sychology; in other words, market participants tend to provide a consistent reaction to similar
market stimuli over time. Technical analysis uses chart patterns to analyse market movements
and understand trends. Although many of these charts have been used for more than 100 years,
they are still believed to be relevant because they illustrate patterns in price movements that
often repeat themselves.

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1.3.4 MARKET TRENDS

A trend is really nothing than the general direction in which a security or market is headed.
Take a look at the chart below:

Unfortunately, trends are not always easy to see. In other words, defining a trend goes well
beyond the obvious. In any given chart, you will probably notice that prices do
not tend to move in a straight line in any direction, but rather in a series of highs and lows. In
technical analysis, it is the movement of the highs and lows that constitutes a trend.
For example, an uptrend is classified as a series of higher highs and higher lows,
while a downtrend is one of lower lows and lower highs.

1.3.5 TYPES OF TRENDS

There are three types of trends :

 Uptrend
 Downtrend
 Sideways / Horizontal trend

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UPTREND
An uptrend describes the price movement of a financial asset when the overall direction is
upward. In an uptrend, each successive peak and trough is higher than the ones found earlier
in the trend. The uptrend is therefore composed of higher swing lows and higher swing highs.

DOWNTREND
A downtrend is a gradual reduction in the price or value of a stock or commodity, or the activity
of a financial market.

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SIDEWAYS / HORIZONTAL TREND
A sideways trend is the horizontal price movement that occurs when the forces of supply and
demand are nearly equal. This typically occurs during a period of consolidation before the price
continues a prior trend or reverses into a new trend.

1.3.6 TREND LINES

In finance, a trend line is a bounding line for the price movement of a security. It is formed
when a diagonal line can be drawn between a minimum of three or more price pivot points. A
line can be drawn between any two points, but it does not qualify as a trend line until tested.
Hence the need for the third point, the test.

A trend line is a simple charting technique that adds a line to a chart to represent thetrend in
the market or a stock. Drawing a trend line is as simple as drawing a straight line that follows
a general trend. These lines are used to clearly show the trend and are also used in the
identification of trend reversals.

As you can see in Figure below, an upward trend line is drawn at the lows of an upward trend.
This line represents the support the stock has every time it moves from a high to a low. Notice
how the price is propped up by this support. This type of trend line helps traders to anticipate
the point at which a stock's price will begin moving upwards again. Similarly, a downward
trend line is drawn at the highs of the downward trend. This line represents the
resistance level that a stock faces every time the price moves from a low to a high.

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1.3.7 CHANNELS
A channel, or channel lines, is the addition of two parallel trendlines that act as strong areas
of support and resistance. The upper trendline connects a series of highs, while the lower
trendline connects a series of lows. A channel can slope upward, downward or sideways but,
regardless of the direction, the interpretation remains the same.

Traders will expect a given security to trade between the two levels of support and resistance
until it breaks beyond one of the levels, in which case traders can expect a sharp move in the
direction of the break. Along with clearly displaying the trend, channels are mainly used
to illustrate important areas of support and resistance.

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1.3.8 SUPPORT & RESISTANCE
Support and resistance is a major concept to understand after the concept of trend.
You'll often hear technical analysts talk about the ongoing battle between the bulls and
the bears, or the struggle between buyers (demand) and sellers (supply). T h i s i s revealed by
the prices a security seldom moves above (resistance) or below (support).

ROLE REVERSAL
Once a resistance or support level is broken, its role is reversed. If the price falls below a
support level, that level will become resistance. If the price rises above a resistance level,
it will often become support. As the price moves past a level of support or resistance, it is
thought that supply and demand has shifted, causing the breached level to reverse its role. For
a true reversal to occur, however, it is important that the price make a strong move
through either the support or resistance.

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1.3.9 CANDLESTICK CHART PATTERS
One of the fundamental understandings
necessary to learning technical analysis
is reading candlestick charts. If you have
never studied technical analysis,
chances are you have only used a line
chart. Line charts only provide one data
point, the closing price of a stock, but
candlestick charts provide five:
open, close, low of day (LOD), high of
day (HOD), and direction of movement.
A visualization of how a candlestick chart provides this information is illustrated on the left.

Each candle can represent anywhere from 1 minute to 1 year depending on the settings. Longer
time frame charts are more likely to provide reliable long-term trends.

COMMON CANDLESTICK SIGNALS

1. HAMMER CANDLE
Pictured to the left is a hammer candle. This type
of candle typically consists of a green body with
little to no upper wick, and a long lower wick.
This signifies that price action during the day was
down trending, but buyers came in to retrace the
price all the way back to opening price, and then
some more.

This candle is usually a sign of a reversal, or at

least a dead cat bounce in a downtrend.

2. SHOOTING STAR
This candle structure is opposite to the hammer
candle, and is a bearish signal. It typically
consists of a red body with little to no lower
wick, and a long upper wick. Logically
speaking, this shows price action increasing
after open, followed by sellers pushing the
price back down all the way to the opening
price, and then some more.

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3. BULLISH ENGULFING
This is a bullish signal that occurs when one
day’s range completely covers the previous
day’s range. Typically, the first day is a bearish
red candle, covered by the following day’s
bullish green candle that opens lower than the
previous day and closes above the previous
day’s range. The buyers regain control and push
the price up, indicating a bullish signal.

4. BEARISH ENGULFING
This candle structure is the opposite of the
bullish engulfing, and is a bearish signal. It
typically consists of one day’s bearish range
completely engulfing the previous day’s range.
The sellers take control and push the price
down, indicating a bearish signal

5. HANGING MAN
The hanging man is the bearish equivalent of a
hammer; it has the same shape but forms at the
end of an uptrend. It indicates that there was a
significant sell-off during the day, but that
buyers were able to push the price up again.
The large sell-off is often seen as an indication
that the bulls are losing control of the market.

6. MORNING STAR
The morning star candlestick pattern is
considered a sign of hope in a bleak market
downtrend. It is a three-stick pattern: one short-
bodied candle between a long red and a long
green. Traditionally, the ‘star’ will have no
overlap with the longer bodies, as the market
gaps both on open and close. It signals that the
selling pressure of the first day is subsiding, and a bull market is on the horizon.

26
COMMON CHART PATTERS

1. HEAD AND SHOULDERS

The head and shoulders pattern is one of the strongest indicators of an uptrend reversing to a
downtrend. In this pattern, there is
one large peak, or high, with two
slightly lower highs on each side.
The peak is referred to as the
head, and the two lower highs are
considered the shoulders. Once
the third peak falls below the
neckline, or the support level from
the previous two lows, it is likely
that the stock will enter a downtrend. This is because the stock was previously creating higher
highs and higher lows in an uptrend, but a break of the neckline after a lower high signifies that
the stock is now creating lower highs and lower lows.

The opposite of this pattern is known as the Inverse Head and Shoulders. This pattern has
one low bottom with two slightly lower lows on each side. If the neckline breaks, it is likely
that the stock will reverse from an uptrend to a downtrend.

2. DOUBLE TOP
The double top pattern is another pattern
that signifies a trend reversal from an
uptrend to a downtrend. In this pattern, a
stock’s price will peak and retrace to a
support level before pushing back up to
retest the peak. Once rejected, the stock
will push back down and break its known
support level. This confirms similar
highs and lower lows, indicating the start
of a downtrend.

The opposite of this pattern is known as the Double Bottom. This pattern has two bottoms that
act as support near a similar price level. The stock then breaks through resistance to begin a
new uptrend.

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1.3.10 TECHNICAL INDICATORS

A technical indicator is a mathematical

pattern derived from historical data used
by technical traders or investors
to predict future price trends and make
trading decisions. It uses a mathematical
formula to derive a series of data points
from past price, volume, and open interest
data.

A technical indicator is usually shown

graphically and compared with the
corresponding price chart for analysis. The mechanics of a technical indicator captures the
behaviour and sometimes the investors’ psychology to provide a clue of future trends of price
activity.

Technical indicators offered in technical analysis to predict future price movements include
cycle volumes, momentum readings, volume patterns, price trends, Bollinger Bands, moving
average, Elliot waves, oscillators, and sentiment indicators. Besides providing valuable insight
into the price structure, a technical indicator also shows how to reap potential profits from price
movements.

1.3.11 UNDERSTANDING TECHNICAL INDICATORS

A technical indicator is generally a mathematically derived representation of data, such as

price, volume, or open interest, to detect stock movement. The indicator is weighed based on
historically-adjusted returns, common sense, an investor’s objective, and logic to evaluate
investments and identify trading opportunities.

Some technical indicators generate signals as stand-alone, while others supplement each other.
As elements of technical analysis, they are used to evaluate a security’s strength or weakness
by focusing on trading signals, patterns or price movements, and other analytical charting tools.
Although there are non-specific technical indicators with regard to the market, some technical
indicators are meant to be used for a specific financial market.

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1.3.12 TYPES OF TECHNICAL INDICATORS

 OSCILLATORS

Oscillators are a special subset of technical indicators that oscillates between a local minimum
and maximum and focuses on market momentum. They are best used to provide readings of
overbought and oversold price movements. Traders and investors define price turns and
reversals within ranging markets using oscillators because they swing within a generally
defined range.

In many cases, technical analysts consider using multiple oscillators on a single chart as
redundant because they bear a striking similarity in their mathematical formulas, function, and
appearance. Technical analysis uses oscillators, such as relative strength.

 OVERLAYS

Overlays are special types of technical indicators used by traders and investors to identify
overbought and oversold levels. They provide insight into the supply and demand of a stock.
Commonly used overlays include Bollinger Bands and moving average.

Other than giving the overbought and oversold conditions, Bollinger Bands measure the
impending market volatility. On the other hand, moving averages are used to determine and
measure the strength of a market trend.

COMMON TECHNICAL INDICATORES

1. EXPONENTIAL MOVING AVERAGE (EMA)

Exponential Moving Average (EMA) is similar to Simple Moving Average (SMA), measuring
trend direction over a period of time. However, whereas SMA simply calculates an average of
price data, EMA applies more weight to data that is more current. Because of its unique
calculation, EMA will follow prices more closely than a corresponding SMA.

Use the same rules that apply to

SMA when interpreting EMA.
Keep in mind that EMA is
generally more sensitive to
price movement. This can be a
double-edged sword. On one
side, it can help you identify
trends earlier than an SMA
would. On the flip side, the
EMA will probably experience
more short-term changes than a
corresponding SMA.

29
Use the EMA to determine trend direction, and trade in that direction. When the EMA rises,
you may want to consider buying when prices dip near or just below the EMA. When the EMA
falls, you may consider selling when prices rally towards or just above the EMA.

Moving averages can also indicate support and resistance areas. A rising EMA tends to support
the price action, while a falling EMA tends to provide resistance to price action. This reinforces
the strategy of buying when the price is near the rising EMA and selling when the price is near
the falling EMA.

All moving averages, including the EMA, are not designed to identify a trade at the exact
bottom and top. Moving averages may help you trade in the general direction of a trend, but
with a delay at the entry and exit points. The EMA has a shorter delay than the SMA with the
same period.

You should notice how the EMA uses the previous value of the EMA in its calculation. This
means the EMA includes all the price data within its current value. The newest price data has
the most impact on the Moving Average and the oldest prices data has only a minimal impact.

EMA = (K x (C - P)) + P Where: C = Current Price P = Previous periods EMA (A SMA is used
for the first periods calculations) K = Exponential smoothing constant

The smoothing constant K, applies appropriate weight to the most recent price. It uses the
number of periods specified in the moving average.

2. RELATIVE STRENGTH INDEX

The Relative Strength Index (RSI) is a technical analysis tool that is used to measure the degree
of recent price movement of an asset/market to determine overbought or oversold conditions.
The RSI is referred to as a momentum oscillator which fluctuates between 0 and 100.

Notice the ‘mid-line’ at 50 in the image below - traders will frequently use this as a cut-off. If
the RSI is reading above 50, traders will consider the trend to be bullish. If RSI is below 50,
traders will often consider the momentum to be bearish. Traders have also taken this a step
further, with the idea that if RSI goes over 70 – the pair is not only bullish, but potentially
overbought. Alternatively, traders often assume that if RSI is below 30 – the pair isn’t just
bearish, it may be oversold.

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OVERBOUGHT SIGNAL

Below chart shows an overbought RSI signal above the ‘70’ level indicating potential short
entry opportunities.

OVERSOLD SIGNAL

Below chart shows an oversold RSI signal below the ‘30’ level indicating potential long entry
opportunities.

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Divergence is another valuable way to use the RSI indicator. Divergence is a tool used to spot
potential reversals by comparing the movement between indicator and market direction. The
charts below illustrate positive (bullish reversal) and negative (bearish reversal) divergence
signals.

POSITIVE DIVERGENCE
Below chart exhibits falling prices along with rising RSI levels signalling a reversal in trend to
the upside.

NEGATIVE DIVERGENCE
Below chart exhibits rising prices along with falling RSI levels signalling a reversal in trend to
the downside.

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3. VOLUME
Volume is the total amount of a security or item that is traded over time, frequently over a
trading day. For instance, the number of shares traded between a stock’s daily open and close
is referred to as its trading volume. Technical traders need key information like trading volume
and changes in volume over time.

High volume indicates more interest in the stock and the presence of buyers and sellers in that
stock. When the stock is in an uptrend, and there is an increase in volume along with the
ongoing uptrend, the stocks will continue to go up.

Low volume indicates a lack of interest in that particular stock. When the stock is moving up
and volume is falling then it indicates the interest of the buyers has reduced in the stock and
the uptrend is going to reverse.

volumes

33
1.3.13 HOW TO PERFORM TECHNICAL ANALYSIS

Identifying the trend

This is the first step in technical analysis for traders because trading strategies can either follow
the trend or go against the trend. However, for each of these systems, you have to identify
whether the current trend is an upward trend, a downward trend, or a sideways trend. Each of
these three price trends requires a different trading approach, depending on your trading
strategy. In this case, we’ll demonstrate using a trend-following trading system.

For such a system, traders generally buy or take long positions in assets that are in an uptrend.
Assets in a downtrend are typically sold short, while instruments in a trading range are
commonly entered into at established support or resistance levels where a trader believes there
is a high likelihood of a trend reversal.

Drawing support and resistance levels

Support and resistance levels are areas where the price of an asset is likely to reverse or stage
a breakout.

A support level is a level where the downward price trend of an asset pauses as buying demand
increases, so the trend reverses and turns upward. The same reasoning applies to resistance
levels where the upward price momentum of the asset weakens and the price is likely to reverse
and head downward. Support and resistance levels can provide excellent opportunities for
traders to open new trades.

Establishing entry and exit points

While identifying areas of support and resistance can present excellent entry positions, there
are other factors technical traders can consider when determining their entry positions. These
include the values of technical indicators such as the Average True Range (ATR) and Relative
Strength Index (RSI). These are volatility indicators, which can help a trader establish whether
there’s adequate momentum behind a price move.

Position sizing and risk management

Technical momentum and volatility indicators such as the Average True Range are commonly
used by professional traders to help with position sizing and risk management. Depending on
your chosen risk/reward ratio, you can use the ATR to determine where to place your stop loss
once you’ve identified an entry position.

For example, some long-term traders prefer to set their stop loss order 1ATR away from their
entry position with a profit target 3ATRs away for a 1:3 risk/reward ratio.

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1.3.14 ASSUMPTIONS OF TECHNICAL ANALYSIS

The market price reflects everything that could affect the asset

This assumption is also referred to as the efficient market hypothesis, which allows traders to
ignore all fundamental factors that could affect an asset. Therefore, technical analysts and
traders typically focus solely on analysing the instrument's price movements.

The price of an asset usually moves in predictable trends

This assumption states that despite the millions of individual price movements recorded in a
day, price movements are not random as they do follow specific trends. The main objective of
technical analysis is to identify the current trend and use it to predict future trends.

Price movements follow repeatable patterns

This assumption is based on the belief that prices in financial markets are driven by the human
emotions of fear and greed. Therefore, price patterns that occurred in the past tend to be
repeated if the same conditions that drive traders’ emotions exist today.

The above principles explain why some technical analysis patterns and tools have been in
existence for over 100 years, yet they are still effective in today’s markets.

1.3.15 IMPORTANCE OF TECHNICAL ANALYSIS

Takes Less Time

Supporters of technical analysis believe that one can speculate faster with charts
and price data as all information and research is already priced into the market. Because of
this one’s having a technical expertise can be benefited by sticking to studying the charts and
data. It means that spending a less time on irrelevant information and more time
to becoming familiar with price movements of the market. By focusing on implementation
and ultimate focusing on profits and losses can help to manage risk as well (Financial Web).

Technical analysis focuses on price movement

Movement of prices is the primary focus of technical analysis. Charts use to show the
movement of prices and the strength of those trends when the prices are trending. Oscillators,
momentum and volume give a clear portrait of market action. Unlike fundamentalist, they do
not use the reports of economic conditions that evaluate the demand for a currency.

35
Inexpensive
Technical analysis’s indicators and software packages are comparatively low-cost. They used
to a preferred end for further analysis and formation of strategies which can be managed by
one person. The obstruction to enter into a day trading with technical analysis is near to the
ground due to its low-cost which allow individuals to connect with and succeed in investing
and trading.

Strategic
Technical analysis is a pioneer to making a good strategy. It focuses the trader on the
implementation of a strategy that is appropriate for his/her trading mode. Strategic focuses of
technical analysis allow individuals for better success through strategic stand point. For
example, traders are able to identify strategically and systematically that how and when to place
their trade and close a position instead of just investigating the news exposures and primary
information. That is why it is one of the most important features of technical analysis.

Charts provide a wealth of information

A huge amount of information can be found in a few moments through charts and indicators.
Trends, momentum, volatility, trading patterns, Support and resistance levels come into view
easily and quickly. More than fifty kinds of indicators are there
to provide information on different features related to the movement of currency.

1.3.16 ADVANTAGES OF TECHNICAL ANALYSIS

High Flexibility: Technical analysis can be applied to various financial markets, not just
limited to stocks. It can be utilized in international money markets, interest rates, gold, Bitcoin,
forex, cryptocurrencies, and more. In contrast, fundamental analysis may not easily translate
across different markets. Additionally, technical analysis can be adjusted and tailored for use
in different timeframes, whether short-term or long-term.
Time Efficiency: Technical analysis helps shorten the scope and duration of study. When time
is limited or there are opportunity costs involved, technical analysis focuses on the net effect
of the cause rather than delving into the root cause itself. This allows for quicker analysis and
decision-making. Time never waits for anyone, and technical analysis acknowledges this
reality.
Early Price Movements: Sometimes, price movements occur before fundamental analysts
discover the underlying causes. Due to the global and interconnected nature of markets, there
are numerous factors influencing price movements. While fundamental analysts may
eventually identify the true causes, prices can be continuously affected by other factors. Traders
who rely on money or stock trading cannot always wait for the real cause to be known as the
traders.

36
Time-saving Analysis: Technical analysis saves time by allowing analysis of a larger number
of markets. Fundamental analysts may be limited to specializing in a particular business group
due to time constraints and the abundance of data. In contrast, technical analysis enables us to
examine price movements across various industries more efficiently and quickly. It provides a
broader perspective and facilitates a better understanding of the overall picture.

Market Timing: Technical analysis helps determine the timing of market entry for stocks. It
provides signals that aid in deciding when to enter and trade stocks or when it may be prudent
to stay out of the market during a particular period.

1.3.17 DISADVANTAGES OF TECHNICAL ANALYSIS

While technical analysis can help limit the scope and shorten analysis time, relying solely on
the final outcome of an event may render the analysis inadequate. It can leave one vulnerable
to stock manipulation, which can be mitigated to some extent by setting predetermined stop
levels. It is crucial to have the courage to cut losses swiftly when faced with unexpected price
movements in the market. Failure to do so may lead to a more significant problem as the
number.

Utilizing technical analysis without comprehending the underlying concepts can be perilous.
For instance, using a trend-following system in a sideways market may result in frequent trades
with minimal profits or barely covering the broker's commissions. Therefore, if one wishes to
be a technical analyst, it is essential to grasp the concepts of the tools to be employed and
integrate.

Some investors mistakenly believe that knowing technical methods allows them to buy at the
lowest price and sell at the highest price. However, in reality, no tool or technique can
consistently achieve this. Technical tools primarily indicate when to enter or exit the market,
as well as when there is confirmation of a potential trend change. However, by the time a real
trend change is confirmed, one may have already missed the lowest or highest point.
Nonetheless, technical analysis can help reduce the risk associated with incorrect entry and exit
points. It is important to note that technical analysis does not guarantee the attainment of
maximum profits.

1.3.18 LIMITATIONS OF TECHNICAL ANALYSIS

 According to hypothetical performance, one of the limitations is that it is
commonly prepared with the advantage of hindsight.

 In addition, Financial risk is not involve in hypothetical trading and in actual trading, there
is no trading record that can absolutely account for the impact of financial risk.

 Another limitation is that the method of technical analysis usually gives lot of false signals.

37
1.4 DIFFERENCE BETWEEN FUNDAMENTAL AND TECHNICAL
ANALYSIS

The way of working

Fundamental analysis attempts to calculate the future value of a share through various
economic variables, known as fundamentals. The analysis consists of studying the economy as
a whole, the industry in which the company operates and the company itself. The basic premise
of this analysis is that in the short term, the share price does not correspond to its value, but in
the long run it will correct itself. You can make a profit by buying shares at a lower price than
their true value or by selling shares at a higher price that their actual value.
The main task of fundamental analysis is to determine the true value of a share. Whoever
performs the analysis should consider the overall performance of the company and its financial
statements, including all the latest news about the company. Based on all that, he should
conclude whether the market properly evaluated all the information into the share price. The
investor needs to consider all parts of financial statements, including profits, assets, revenues
and expenses, make a comparative analysis by year, analysis, the investor can understand how
prices react to certain changes in the company’s financial performance.

The best worldwide example of an investor who applied fundamental analysis is the renowned
Warren Buffett. He is also known as the Oracle of Omaha because he is from Ohama,
Nebraska. He used value investing, i.e. invested in shares he thought were undervalued, and
waited, sometimes even for a long periods of time, for the prices to increase to their expected
level.

Technical analysis attempts to predict the share price in the future. It does not deal with all the
economic factors that may affect it, but only with the share price’s movements. Additionally,
for the technical analyst it does not matter what is the real value of the share, but only what are
the price patterns created by supply and demand and what insights we can get from them. The
purpose of technical analysis is to forecast the stock price in order to establish favourable
moments for buying and selling stocks.

Technical analysis is based on the premise that all the important fundamental factors are
already reflected in the share price. Accordingly, it focuses only on the share price and trading
volume, which are measured and presented at various tables and graphs. By analysing these
graphs, the investor can obtain information about certain trend formations and regularities in
the price movement, the trading volume and their inter dependence. One of the more popular
charting tools is the candlestick chart, named because it resembles a candle. The figure for each
trading period is plotted to show the high and low prices for the period, along with the opening
and closing prices. The most common types of price patterns are “head and shoulders”, which
shows that after its formation, the price will start moving in the opposite direction of the
previous trend, “cup and handle”, a pattern that shows that there is a growing trend, which will
continue after a small pause and “double tops and bottoms”, a pattern that suggests a changing
trend. Technical analysis is also uses moving averages. They level the short term price
fluctuations and also help in the detection of ascending and descending trends. Levels of

38
support and resistance are another aspect that can be analysed by moving averages. For
example, if a share is in a downward trend, when it reaches the level of support of a long-term
moving average, it will probably change its direction.

These differences are due to the basic principle in which fundamental analysts believe, which
is that the shares are not correctly valued by the market at any given moment. Technical
analysts consider all external factors instantly reflected into the share price, as opposed to
fundamental analysts, who believe that it takes some time for it to happen. Therefore, there is
an opportunity to make profits in the time when the price has still not reflected every available
company-related information in it. The nature and methods of the technical analysis make it
useful for short term trading and therefore, it is used mostly for trading purposes, while
fundamental analysis, on the other hand, is mainly used for investments.

Time horizon

Fundamental analysis uses longer periods when analyzing stocks than technical analysis.
Technical analysis uses relatively short periods, that may be days, weeks or months, while
fundamental analysis uses periods of several years.

Therefore, that implies that the fundamental analysis is used by investors who are trying to pick
stocks whose value will increase in the future, over several years. They believe that if they have
chosen the correct stocks, their price will eventually rise, even if it takes several years for that
to happen. In contrast, the technicians are trying to find stocks that they can trade in the short
term, i.e. stocks whose prices will experience significant changes in the coming days or weeks.

The different investment styles implemented by investors who use fundamental and those who
use technical analysis lead to different time frames in their analyses. As we know, the
fundamental analyst estimates the real value of the share, but that value will become its market
price after a certain time has passed. It is this way of investing that is known as value investing.
If the market reflects all share-related changes momentarily to its price, then the value investing
and the fundamental analysis itself would not be possible. In addition, the data used by
fundamental analysts is not published daily as is the case with the data on price movements
and trading volume, but is published on a quarterly or annual basis. Sometimes, financial
statements are published only annually, while the price data is available almost instantly.

Charts vs. Financial statements

Fundamental analysts have the financial statements as the main source of information, while
technical analysts use charts with price movements as the almost only source of data. The
fundamental analyst estimates the intrinsic value of the stock by analysing the income
statements, balance sheets and the statements of cash flow. In this approach, the investment
decision logic is simple – if the stock trades at a price lower than its estimated intrinsic value,
than it’s a good investment. Fundamental analysts use however more complex information in

39
their analysis, not only the data found in the financial statements. On the other hand, technical
analysts believe that all you need to know about a stock can be found within the stock price’s
charts.

Trading vs. Investing

The time difference between fundamental and technical analysis is seen not only in their short-
term or long-term approach, but also in their purpose. In general, the purpose of the technical
analysis is trading, and the goal of fundamental analysis is investment. Fundamental analysis
is primarily used by investors who buy and hold stocks for a period of time, while technical
analysis is most frequently used by traders looking to make short-term profits. Investors buy
certain stocks because they believe that their value will increase in the future, while traders buy
certain stocks because they think they will be able to sell them at a higher price in a relatively
short period of time. Sometimes, this difference may not be so clear, but there is certainly a
distinct approach between these philosophies. They certainly seem similar and generally use
the same idea and concept, but they are essentially different schools of thought.

1.5 COMBINED USE OF FUNDAMENTAL AND TECHNICAL ANALYSIS

Technical and fundamental analysis are seen as total opposites in the world of investments.
However, many investors and traders have managed to combine them and achieve successful
results. Investors who apply mainly fundamental analysis, can use technical analysis to
determine the exact time when to make a transaction, whether it’s buying or selling. Since
technical analysis is primarily a market timing tool, it can be implemented effectively in
conjunction with fundamental analysis. The proper assessment of the time to enter into the
investment opportunity can sometimes be more important and the investment itself. Therefore,
the best advice would be to study the fundamental factors, make the investment decision and
use the technical analysis to determine the time of purchase or sale.

On the other hand, investors who use mainly technical analysis, in some cases can benefit from
fundamental analysis. If a technical analyst detects certain price pattern and determine that
some particular stock is a good investment, he can further confirm his assessment by analysing
some important fundamentals of the company, which can provide valuable information about
its financial position and its capacity.

This suggests that the fundamental and technical analysis differ between each other, but they
are not necessarily mutually contradictory. In general, the proponents of both technical and
fundamental analysis are not big advocates of the idea of combining them. However, it is
undeniable that there are certain advantages in combining them or at least having a deeper
knowledge of both types of investment strategies, since technical and fundamental analysis are
the most important and the most powerful tools in the realm of finance and investing.

40
1.6 EXAMPLE OF FUNDAMENTAL AND TECHNICAL ANALYSIS

FUNDAMENTAL ANALYSIS OF RELIANCE INDUSTRIES

Ambani-led Reliance Industries Ltd. (RIL) has given impressive returns in the last five years.
It generated a 21% CAGR return for its investors launching this or that new business
successfully. Where does it stand today? Can investors expect the same returns in the future?
We shall attempt to answer these and other questions by performing a fundamental analysis of
Reliance Industries.

1.6.1 COMPANY OVERVIEW

Reliance Industries Ltd. (RIL) was founded 65 years ago in 1958 by Shri Dhirubhai Ambani
as a trading corporation. Over the years, it has grown to become India’s largest company in
terms of market capitalization with multiple business interests ranging from oil exploration and
petrochemicals to telecommunications to retail and more.

Shri Mukesh D. Ambani presently serves as the chairman and managing director of the
conglomerate. He got control of the oil business after a business split was formalized in 2005
between his brother Anil Ambani and following a family feud.
Under his stewardship, RIL has grown into a corporate behemoth with a worldwide presence.
It houses well-known brands including Jio, Trends, Ajio, Urban Ladder, Clovia, Moneycontrol,
Voot, Colors, and many more across retail, apparel, e-commerce, media, and other industries.
The market capitalization of Reliance Industries stood at Rs 1,587,500 crore as of the writing
of this article.

The group employs close to 3.43 lakh people and counts high-profile individuals such as Yasir
Othman H. Al Rumayyan (chairman of Saudi Aramco) and Arundhati Bhattacharya (former
chairperson of SBI) on its board of directors.
We got a very brief overview of the history and business of the company. Now we’ll study its
various businesses in the next section of our fundamental analysis of RIL

Business Segments

The conglomerate groups its various businesses into five major segments: retail, digital
services, oil to chemicals, oil & gas exploration, financial services, and others.

Retail

Reliance Retail is the omnichannel (online and offline) division of the company selling clothes,
consumer electronics goods, groceries, footwear, medicines, furniture, jewelry, toys, and more
through its 17,225 stores and multiple mobile apps & websites.

41
It has well-known in-house and partner brands such as Netmeds, Reliance Digital, Reliance
Trends, Ajio, Jio Mart, Clovia, Amante, Ritu Kumar, Manish Malhotra, Just Dial, Dunzo, etc.
under its portfolio.

Digital Services

Mobile services (4G and 5G), fixed broadband services, and online platforms (such as
JioSaavn, Live TV, JioNews, etc.) for retail and enterprise customers together make up the
digital services division of Reliance which operates under the well-known brand Jio.

As for the scale, Jio is the nation’s largest digital services platform with a wide customer base
of 433 million subscribers. Not just this, the company also leads the broadband segment with
its Jio Fiber offering.

Refining and Petrochemicals (Oil to Chemicals)

In spite of heavy investments in other divisions in the recent fiscals, refining, and
petrochemicals (O2C or oil to chemicals) is still the largest segment of Reliance in terms of
operating revenue and profits both.

RIL is one of the largest producers of transportation fuels globally including gasoline, high-
speed diesel, aviation turbine fuel (ATF), etc. via B2B and B2C channels both. In addition to
this, the well-integrated division manufactures a broad range of other products such as butyl
rubber, glass fiber, resins, polymers, etc.

What’s more? RIL is also engaged in fuel retailing with British Petroleum operating Jio-BP
fuel stations across the country.

Others

For our segment analysis, we have clubbed oil & gas exploration, financial services, media and
SEZ development under the others segment as they are comparatively smaller. Although RIL
reports the oil and gas exploration division’s and financial services division’s numbers
separately.

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1.6.2 INDUSTRY OVERVIEW

Since Reliance operates in multiple sectors, we’ll take some space to understand the future
prospects of those sectors individually.

Retail Industry

Due to its large population and rising income levels, India is one of the most lucrative markets.
Multiple domestic and international companies are spending excessively to build online and
offline capabilities to tap the nation’s urban and rural demand.

Various sectors like fashion and lifestyle, nutrition, pharmaceutical, and consumer electronics
together make up the retail Industry in India. The combined sector is projected to grow at a
CAGR of 11% to touch $ 1.2 trillion in value by 2025.

Telecommunication Industry

India’s telecom market is one of the largest in the work with a user base of 1,166.9 million as
of 2022. In recent years, the sector has seen consolidation with the number of large players
reducing to only 3. In addition to this, the customer base has come down by 3.3% and
teledensity falling to 84.88% from 92.84% in FY18. This shift happened as Reliance-led Jio
4G brought an intensive price war along with faster speeds and better connectivity.

In the coming years, the sector is set to see further developments with 5G network rollout,
higher adoption of broadband services, higher enterprise networking needs, and expansion of
the digital ecosystem along with regular mobile services.

Refining and Petrochemicals Industry

The refining and petrochemical operations of Reliance Industries are so widespread that a
combined industry overview is outside the scope of this article. Broadly speaking, the sector is
on recovery with volume and margin recovery for polyethylene, polypropylene, polyvinyl
chloride, intermediates & polyesters, transportation fuels, high-speed diesel, etc.

43
1.6.3 RELIANCE INDUSTRIES FINANCIALS

Revenue and net profit growth

During the last five years, the revenues and net profit of RIL have grown at a CAGR of 13.92%
and 14.68% to Rs 721,634 crore and Rs 67,845 crore in FY22. This growth was led by a mix
of organic and inorganic factors.

Taking cues from our segment analysis above, we can conclude that the entry of RIL into the
telecom sector has been quite profitable. Similarly, the recent focus on retail division, 5G
solutions, and other digital services are expected to drive the top line and bottom line growth
in the years to come.

The table below shows the consolidated operating revenue and net profit of Reliance Industries
Ltd. for the last six years.

44
Margin analysis

Moving on to the margin analysis, the figures have been volatile for the company over the last
six years. However, being a diversified company helps RIL to maintain its margins on a
consolidated basis.
The table below shows the EBIDT margin and net profit margin of Reliance Industries for the
past few years.

We can note that the figures declined considerably in FY19 and FY20 because of cost inflation
and inventory write-down.

*EBIDT margin has been calculated as EBDIT / Gross Turnover

45
Return Ratios: RoCE & RoE

Carrying forward the profitability analysis, the return ratios: RoE, and RoCE of RIL highlight
that the company has maintained an optimal capital structure. This has resulted in higher returns
on equity for investors under the present profitability levels.

The ratios have come down in recent years as the management actively reinvested profits in
new businesses, acquisitions, and investments.

The table below presents the RoE and RoCE of Reliance Industries for the past six fiscal years.

So far so good, in the next section on our fundamental analysis of Reliance Industries, let us
learn how the company manages its debt.

46
Debt / Equity & Interest Coverage

The management of RIL has done a fine job of paying back the debt and diversifying its
business sustainably from its core business of refining and petrochemicals. At the end of FY22,
the company’s debt-to-equity ratio stood at 0.34 and the interest coverage ratio was at 8.6
times.

After successfully launching Jio, RIL roped in marquee investors such as Google and Facebook
to invest in Jio Platforms. The company used these funds to pay back debt, fulfill spectrum
obligations and make investments in other ventures.

The table below showcases the improving trend in the debt-to-equity ratio and interest coverage
ratio of Reliance Industries.

47
Key Metrics Of Reliance Industries

We are almost at the end of the fundamental analysis of Reliance Industries. The table below
compiles the key metrics of the stock.

48
1.6.4 TECHNICAL ANALYSIS OF RELIANCE INDUSTRIES

Monthly chart of Reliance Industries

As you see the above chart, there is strong support at price 2200. The market has spent more
time in the price range between 2200 to 2900. As the price goes up, the volume is getting
decrease. The price tried to get sustain at this range and created a side ways range between the
price 2200 to 2900. If market price gets fall, the price will come up to support level 1, and will
start again moving in uptrend. If the price breaks the support level 1, it will come up to support
level 2. The same thing will happen with support level 3. As shown in above chart, there is
strong bullishness in the market. According to trend, there are high possibilities that market
price will continue this bullish trend.

49
Weekly chart of Reliance Industries

As you see the above weekly chart of Reliance Industries, there is a strong support and
resistance shown. The price has given breakout of resistance. The price has sustained above
the resistance. As per the monthly chart analysis, there is a strong bullishness in the price level.
At the breakout level, there is high volume supporting to push the price upside. So there is a
good opportunity of buying this stock.

50
1.6.5 HOW TO PICK STOCKS: FUNDAMENTALS VS. TECHNICALS

Which type of analysis is right for you?

Both fundamental and technical analysis can reveal potentially valuable information, and
focusing on just one style could cause you to miss important clues about a stock’s prospects.
And because the intended duration of an investment or trade may change, using both forms.

Why not deploy them so their strengths complement each other? For example, a trader might
use fundamental factors to select the candidate and technical factors to identify a specific entry
or exit price.

Growth investor's strategy

Growth investors focus on the future prospects of a particular company. Corporations are
generally built to grow and turn a profit—and eventually return some of that profit to
shareholders. Very few new companies are immediately profitable. But if a company reports
strong revenue growth initially—even if it fails to turn a profit in its early days—growth
investors may still decide it's a good prospect for the future. When investors decide a young
company has an innovative product or compelling competitive advantage, they may start to
drive the stock’s price higher. The more investors who join the party, the higher the company’s
stock price is likely to rise. Such investors typically focus on metrics like a company’s
historical and projected revenue growth rates when buying shares of relatively new companies.

Value investor's strategy

Value investors focus on whether the current stock price makes sense given the health of a
particular company and typically seek companies that appear to be priced below what their
revenues, EPS, or other fundamental metrics suggest. Such investors often focus on industry-
leading companies, which are generally past their peak revenue growth years, because these
companies often pay steady dividends. Value stocks tend to have low P/E ratios and pay above-
average dividends, but they trade at a price that is very low or below their book value (total
tangible assets minus total liabilities). Sometimes value investing is described as investing in
great companies at a good price, not simply buying cheap stocks.at a good price, not simply
buying cheap stocks.

51
Value screening

You can use several other metrics when searching for value stocks, though a simple approach
would be to consider those with:

 An above-average dividend yield (but not too high)

 Low P/E ratio

 A price that is less than the company’s book value

Selecting stocks using technical signals

Stock selection using technical analysis generally involves three steps: stock screening, chart
scanning, and setting up the trade. With stock screening, your goal might be to arrive at a list
of 20 or 25 candidates using a set of technical criteria. You could then try to narrow that list
down to three or four candidates by scanning the charts for possible entries, or points where it
could make sense to buy. Finally, you'll perform a more detailed chart analysis and choose the
one you may consider trading.

Screening stocks

To set up a screen, consider the following items:

 Price and market capitalization. This can be a good place to start because it allows you
to eliminate a lot of stocks right away. For example, if you’re not interested in stocks priced
over $100, you could exclude them in the search.

 Sectors and industries. Many traders compartmentalize the stock market into broad
sectors (technology, energy, financials, etc.) or, going further, break it into industry groups,
like software, semiconductors, and computer hardware within the technology sector. Look
for strong sectors and industry groups if you want to go long—that is, buy a stock with the
expectation that its price will rise—and weak ones if you want to go short—which means
borrowing and selling a stock whose price you think is going to fall, and then buying it
back later at a lower price should it actually fall, all with the expectation that you’ll pocket
the difference. Because short selling involves potentially unlimited risk if the underlying
stock moves higher, it's considered an advanced strategy and also requires a margin
account.

52
 Momentum. Technical traders usually want to identify strong, up trending stocks for
potential buys and weak down trending stocks for shorts. One way to find them is to use
moving averages, which are trend-following indicators that smooth out day-to-day price
movements to show a stock’s general direction over time. They can also act as support and
resistance levels. Support is an area on the chart where downward trends seem to find a
floor as buying pressure overcomes selling pressure. Resistance is often a price area where
the upward trends start to fizzle as selling pressure overcomes buying pressure.

 A simple moving average is calculated by averaging a stock’s closing prices over a

defined period. Many traders use 20 days as a starting point, but you can use different
periods according to your trading style.

 A momentum trader going long might ask, is a stock trading above its 20-day moving
average? Has its 20-day moving average broken above its 50-day moving average? A trader
looking to short a stock might search for one trading below its 20-day moving average and
has a 20-day moving average below its 50-day moving average. You might narrow the list
further by looking for stocks that trade at least 200,000 shares per day.

Scanning charts

After compiling a list of candidates, it’s time to look for those with good entry points. Two
common entry strategies are either to look for breakouts in the direction of the trend—for
example, stocks experiencing a sharp upward movement in price—or to look for pullbacks,
which are short-term moves in the opposite direction of the longer-term trend.

For breakouts on longs, an entry point could be the first or second new high after the stock has
traded sideways for a few days. For breakouts on shorts, an entry point could be the first or
second new low after a few days of sideways movement. With the pullback strategy, you may
want to see the stock correct for a few days in the direction opposite the trend. You might then
consider buying into that short-term weakness on the longs or selling into that short-term
strength on the shorts.

Setting up the trade

We’ll assume for the sake of discussion that you prefer pullback entries and have narrowed
your choices down to two buy candidates, stock A and stock B. To choose between them, it
could make sense to bring a few indicators to bear: price patterns, volume, moving average.
pulled back to a support level, such as a moving average or an old low. However, this isn't a
guarantee. We also want to know if a pullback is ending then there is big opportunity to buy it.

53
 CHAPTER 2.

REVIEW OF LITERATURE
Sriyank Levi, Prathima P, Sarah Merlyn presents “Fundamental and technical analysis
leads to a systematic investment decision in stock market equities.”
India is the world's fifth largest economy and third in purchasing-power-parity. The decline in
GDP due to the global pandemic may lead to a global recession. However, investment
opportunities available in the equity market can nullify this shortage. Fundamental and
technical analysis plays a prominent role in prudent investment decision making. These include
financial ratios, financial statements, enterprise valuation, DCF modelling, and qualitative and
quantitative data. Fundamental analysis requires following up at least five years of annual
reports, while technical analysis helps manage trading risk.

Prof. Nada Petrusheva Ph.D, Igor Jordanoski, MSc presents “Comparative analysis
between the fundamental and technical analysis of stocks.”
Fundamental analysis calculates intrinsic value of a share and finds opportunities where it
differs from its current market price. It looks at economic factors found in financial reports and
macro-economic indicators. Technical analysis predicts future market price using past
performance statistics and patterns in stock price movements. They are different strategies for
making investment decisions, but both have advantages and can be combined for optimum
results.

Bassam A. Elbialy presents “The Effect of Using Technical and Fundamental Analysis on
the Effectiveness of Investment Decisions of Traders on the Egyptian Stock Exchange.”
The approach is the one through which the trader can reach an answer to a very important
question which is Do I open a long or short position now? Knowing that there is no trader who
can learn all the methods through which this question can be answered. where the markets flow
from it There is an enormous amount of information and there are two types of analysis that
traders use to collect and analyse this information in order to help him make market decisions.

54
Shakeel Muhammad, Gohar Al presents “The Relationship Between Fundamental
Analysis and Stock Returns Based on the Panel Data Analysis; Evidence from Karachi
Stock exchange (KSE).”
A study has identified factors such as firm size, past stock performance, value, and growth as
some of the factors affecting stock returns in Pakistan's stock market. The study examines the
impact of fundamental analysis on stock returns using four variables from five different areas
of profitability, liquidity, solvency, and market-based ratios. The results show a significant
positive impact of some fundamental indicators on stock return prediction, such as current ratio,
leverage ratio, returns on assets, earnings per share, and price earnings ratio. This study
provides help to investors, stock exchange dealers, and brokers to forecast stock prices through
fundamental analysis and get excess returns. There is a significant relationship between
coefficient values such as return on assets (ROA) ratio and stock returns, and variation in these
ratios can bring about movement in stock prices and returns. Investors see company
profitability (return on assets and return on equity) while making investment decisions, and
when ROA ratio is greater or equal to the average of industry, it affects the company's ability
to meet obligations.

Snehal Shah, Ayush Ajmera presents “Fundamental & technical analysis on selected
sectors.”
The article studies the overall performance of 10 Indian companies in IT, Banking,
Automobile, Health, and Infrastructure sectors. It uses fundamental and technical analysis to
predict the share price range of selected companies for the short and long term. TCS is the best
performer, followed by HDFC Bank. Maruti Suzuki is currently bearish, while Larsen &
Toubrois is bullish in the Infrastructure sector. In the Banking and Automobile sectors, shares
should be sold in the short term and bought in the long term due to volatility.

Himanshu Vasani , Dr. Vijay Gondaliya presents “A study on Fundamental and

Technical analysis on IT sector Companies.”
Investing involves fundamental and technical analysis. Fundamental analysis evaluates the
present and future earning capacity of a share based on economy, industry, and company
fundamentals. Technical analysis ignores the actual nature of the company, market, currency
or commodity and is based solely on price and volume information. Investors must also take
into account various factors like Government of India budget, company performance, political
and social events, climatic conditions etc. before making any investment.

55
Reshmi Manna, Saurav Pathak presents “Fundamental and technical analysis of indian
pharmaceutical companies: cipla, sunpharma, auropharma, ranbaxy and lupin”
Business management involves constructing systems to enhance competitive advantage. Risk
management involves evaluating changing context within the business process model. Risk
complexities have been on an incessant rise with globalization and dynamic changes in
business environment. Fundamental comparative analysis of ratios of Auropharma, Lupin, and
Cipla shows strong fundamentals for each company. However, financial bankruptcy of
Ranbaxy and a lack of strong hold of a company have been noticed.

Dr. Yogesh Puri, Ms. Samiksha Agarwal presents “Technical Analysis of Selected
Banking Sector Companies of India”
Technical analysis is a tool used by investors to predict future share prices and formulate
buying and selling strategies. It uses the pattern of share price movements and forecasts trend
reversals on its basis. Technical analysis has its roots since 1884 and is one of the advanced
approaches used to analyse securities. An analysis of top 4 banking sector companies showed
high level of volatility and mix trends were identified. One should take investment decisions
with the help of technical as well as fundamental analysis.

Emon Kalyan Chowdhury presents “Trade-off between Fundamental and Technical

Analysis”
Mr. Jamshed is unsure whether to use fundamental or technical approaches when investing in
the stock market. Both serve different purposes, but striking a balance ensures a satisfactory
return at low risk. Fundamental analysis is useful for non-listed companies, while technical
analysis suggests timing and specific entry and exit points. Long-term investors should have
an idea of a company's value to manage portfolio risk and know when to exit extended price
moves.

Ameya Sunil Pawar presents “A study on using both, technical and fundamental analysis
together for trading and investing, with reference to Day Trading Stocks & Options”
A stock market is a collection of markets and exchanges where securities are issued. Traders
buy and sell shares for immediate profits, while investors keep their securities as an investment.
The market can be analysed in two ways, Fundamental and Technical. Fundamental Analysis
is done by long-term investors, while short term investors prefer technical analysis. Despite
proofs in regressions and cases, investors resist to change the way of single kind of analysis
based on the type of trade.

56
Dr. Sanjay Mohapatra presents “The use of technical and fundamental tools by Indian
stock brokers”
This paper presents findings of an online questionnaire survey on the perceived importance of
chartist/technical and fundamental analysis and the usage of Chartist Methods and Services
and Valuation Techniques among stock brokers of Bombay Stock Exchange, India. Stock
brokers rely more on fundamental analysis vis-à-vis technical analysis at longer forecasting
horizons and rely more on technical analysis at shorter forecasting horizons. Among Chartist
Methods and Services, Sentiment Indicators were most used and Chart Company or Analyst
was least used by brokers. Among Valuation Techniques, Earnings Multiple Methods were
most used and Dividend Discount Models were least used by brokers.

Ahmed S. Wafi, Hassan Ismail presents “Fundamental Analysis v/s Technical Analysis in
the Egyption Stock Exchange”
This Study aims at attempting to answer the following question: Which of the Analysis
Methods i.e. technical analysis or fundamental analysis has more credibility in forecasting
the value (prices & returns) of the share? To achieve this objective, the study used the Pooled
Cross- Sectional and Time Series Analysis. In this paper, we have applied on an arbitration
sample consisting of (37) non-financial companies listed in the Egyptian Financial Markets
(The Egyptian Exchange EGX) and which represent the most active companies in EGX
through the Period (1998 – 2009) i.e. yearly periods.

Wiwik Utami presents “Fundamental Versus Technical Analysis of Investment Case

Study of Investors Decision in Indonesia Stock Exchange”
The focus of this research is to explain whether investors prefer technical or fundamental
analysis to analyse their investment options and to analyse factors influencing the selection
of that investment analysis method. The research uses questionnaire with 125 participants.
Six independent variables used to explain the choice of investment analysis method, namely
investor’s education, investor’s experience, information accessibility by the investor,
investor's time the horizon, trading activity frequency, and investor’s perception toward
the disclosure done by the corporation. The result showed that Indonesian investors prefer
technical analysis. The influencing factors that significantly the selection of analysis method
are investor’s experience and investor’s time horizon.

57
 CHAPTER 3.

RESEARCH METHODOLOGY
To be able to estimate the reliability of a report, the methods which it is based upon must be
considered. Hence, this chapter, methodology, will give the reader an insight into my research
process, selection and data collection.

3.1 OBJECTIVE OF THE STUDY

The objective of this study is to evaluate the potential investment opportunities in the stock
market by applying both fundamental and technical analysis techniques .Specifically, the study
aims to identify undervalued stocks with strong growth prospects based on fundamental
analysis and to capitalize on short-term price movements using technical analysis.

1. To study on fundamental and technical analyses of a company.

2. To study the various theories of technical analysis and fundamental Analysis for various
stocks that chosen.

3. To understand the movement and performance of stocks to take decision to

invest.

58
4. To understanding and analysing the factors that affect the movement of
stock prices in the Indian Stock Markets Sample Design Data collection methodsinclude
the various methods used by the researcher in his project.

3.2 SCOPE OF THE STUDY

1. This study focuses on publicly traded stocks in a specific market or industry sector, with a
particular emphasis on companies of a certain size or financial profile.

2. The scope includes the application of various fundamental analysis techniques, such as
financial statement analysis, industry analysis, and valuation methods.

3. Additionally, the study encompasses the use of technical analysis tools and indicators to
identify price trends, patterns, and momentum signals.

4. The scope also considers the integration of fundamental and technical analysis to provide
comprehensive insights into stock selection and investment decision-making.

5. However, the study does not cover other forms of analysis (e.g., sentiment analysis,
macroeconomic analysis) or alternative investment instruments (e.g., bonds, commodities).

3.3 LIMITATIONS OF THE STUDY

1. The accuracy of the analysis is subject to the availability and quality of data, which may be
limited or prone to errors.

2. Fundamental analysis relies on assumptions about future growth and profitability, which
may not always materialize as expected.

3. Technical analysis is based on historical price patterns and indicators, which may not
always accurately predict future price movements due to market inefficiencies or
unexpected events.

4. The study's findings and recommendations are based on the information available at the
time of analysis and may become outdated or irrelevant as market conditions change.

59
3.4 DATA COLLECTION
Market research requires two kinds of data that is primary data and secondary data.

A) Primary Sources:
Primary data is collected using a well-structured questionnaire, surveys etc. Survey is carried
out in 2 steps
1) First visit
2) Appointment or personal interview

B) Secondary Sources:
Secondary Data is data collected by someone other than the user. Common sources of
secondary data include organizational records and qualitative methodologies or qualitative
research. The data for study has been collected through various sources:
1. Books
2. Internet Sources
3. Online websites
4. References
5. Catalogue

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 CHAPTER 4

DATA ANALYSIS AND INTERPRETATION

Question 1 : What is your gender?

Gender No. of Respondents

Male 25
Female 27

• There were a total of 25 male respondents.

• There were a total of 27 female respondents.
From this data, we can see that there were slightly more female respondents than male
respondents. This distribution may have implications depending on the context in which
the data was collected. If you have any specific questions or need further analysis, feel
free to ask!

61
Question 2 : What is your age?

Age No. of Respondents

Below 25 46
26 - 35 2
36 - 45 3
Above 45 1

1. Below 25: This age group had the highest number of respondents, with a total of 46. It
indicates that the majority of the respondents fall into the younger age category, suggesting a
significant representation of individuals who are below the age of 25.

2. 26 - 35: There were only 2 respondents in this age group. This indicates a very small
proportion of respondents falling between the ages of 26 and 35. It suggests a limited
representation from this age bracket compared to the others.
3. 36 - 45: There were 3 respondents in this age group. Similar to the previous group, the
number of respondents aged between 36 and 45 is also relatively low, indicating a smaller
representation from this age range.

4. Above 45: This age group had the fewest respondents, with only 1 individual. It suggests a
minimal representation of respondents who are above the age of 45, indicating that the survey
sample may not adequately capture perspectives from older individuals.

Overall, the data highlights a significant skew towards younger respondents, particularly those
below the age of 25. The older age groups are notably underrepresented, with very few
respondents aged between 26 and 45, and extremely few respondents above the age of 45.

62
Question 3 : What is your educational background?

Educational Background No. of Respondents

Undergraduate 40
Graduate 7
Post-graduate 1
Any other professional course 4

1. Undergraduate: This category had the highest number of respondents, with 40 individuals.
It suggests that a significant portion of the respondents have completed undergraduate
education as their highest level of academic achievement.

2. Graduate: There were 7 respondents who reported having a graduate-level education. This
indicates a smaller proportion of respondents compared to those with undergraduate education,

3. Post-graduate: Only 1 respondent reported having a post-graduate degree. This suggests a

very small representation of individuals who have pursued education beyond the graduate level,

4. Any other professional course: There were 4 respondents who mentioned completing a
professional course other than those falling under the undergraduate, graduate, or post-graduate
categories.

Overall, the data suggests that the majority of the respondents have completed undergraduate
education, with fewer individuals having pursued graduate or post-graduate studies. The
representation of respondents with alternative professional courses is also relatively minor
compared to those with traditional academic backgrounds. Understanding the educational
background of respondents provides valuable context for interpreting their perspectives and
responses in relation to the survey or study being conducted.

63
Question 4 : Do you know that to invest money in the stock market, the stock of the company
has to be analysed in two ways?

Do you know that to invest money in the

stock market, the stock of the company has No. of Respondents
to be analysed in two ways?
Yes 46
No 6

1. Yes: There were 46 respondents who answered affirmatively, indicating that they are aware
of the necessity to analyse a company's stock in two ways before making investment decisions.
This suggests that a majority of the respondents understand the importance of thorough analysis
when it comes to investing in the stock market.

2. No: Only 6 respondents answered negatively, indicating that they are not aware of the
requirement to analyse a company's stock in two ways before investing. This represents a
smaller proportion of respondents who may not be familiar with this aspect of stock market
investment analysis.

Overall, the data suggests that the majority of respondents are knowledgeable about the
importance of analysing stocks from multiple perspectives before making investment
decisions. This awareness is crucial.

64
Question 5 : What is your preferred method of stock analysis?

Method of stock analysis No. of Respondents

Fundamental Analysis 20
Technical Analysis 17
Both 15

1. Fundamental Analysis: There were 20 respondents who reported using fundamental

analysis as their method of stock analysis. Fundamental analysis involves evaluating a
company's financial statements, management team, industry position, and other qualitative and
quantitative factors to determine the intrinsic value of its stock.

2. Technical Analysis: 17 respondents mentioned using technical analysis. Technical analysis

involves studying past market data, primarily price and volume, to forecast future price
movements. It relies on charts, patterns, and statistical indicators to make investment decisions.

3. Both: 15 respondents stated that they use both fundamental and technical analysis methods.
This suggests that these respondents utilize a combination of both approaches to analyse stocks,
incorporating both fundamental factors and technical indicators into their investment decisions.

Overall, the data indicates that there's a diversity in the methods used by respondents for stock
analysis. While fundamental analysis, technical analysis, and a combination of both are all
employed by some respondents, there's no overwhelming preference for any single method.
This highlights the varied approaches investors take when evaluating stocks and making
investment decisions.

65
Question 6 : How often do you conduct stock analysis?

How often do you conduct stock analysis? No. of Respondents

Daily 16
Weekly 21
Monthly 7
Rarely 8

1. Daily: 16 respondents reported conducting stock analysis on a daily basis. This suggests that
there is a portion of respondents who are actively engaged in monitoring and analysing stock.

2. Weekly: 21 respondents mentioned conducting stock analysis on a weekly basis. This

indicates that a slightly larger group of respondents prefer to review their investments and
analyse stocks on a weekly interval.

3. Monthly: 7 respondents reported conducting stock analysis on a monthly basis. This

suggests a smaller subset of respondents who prefer to review their investments and analyse
stocks on a monthly schedule. Monthly analysis may be more suitable for investors with a
longer-term investment horizon who do not need to monitor market fluctuations as frequently.

4. Rarely : 8 respondents stated that they conduct stock analysis rarely. This could indicate
that these respondents are less actively involved in stock market activities.

Overall, the data suggests a range of approaches to conducting stock analysis among
respondents, with some preferring more frequent analysis (daily or weekly) while others opt
for less frequent reviews (monthly or rarely). The frequency of stock analysis may vary based
on individual investment strategies, time constraints, and market preferences.

66
Question 7 : What fundamental indicators do you consider most important?

Fundamental Indicator No. of Respondents

Earnings per Share (EPS) 32
Price-to-Earnings Ratio (P/E) 13
Dividend Yield Ratio 4
Debt-to-Equity Ratio 3

1. Earnings per Share (EPS): 32 respondents reported using EPS as a fundamental indicator
in their stock analysis. EPS measures a company's profitability by dividing its net income by
the number of outstanding shares.
2. Price-to-Earnings Ratio (P/E): 13 respondents mentioned using the Price-to-Earnings ratio
in their analysis. P/E ratio compares a company's current stock price to its earnings per share.

3. Dividend Yield Ratio: 4 respondents reported using the dividend yield ratio. This ratio
compares a company's annual dividend payment per share to its current stock price. It indicates
the percentage return an investor receives from dividends relative to the stock price

4. Debt-to-Equity Ratio: 3 respondents mentioned using the debt-to-equity ratio in their

analysis. This ratio compares a company's total debt to its shareholders' equity.

Overall, the data suggests that EPS is the most commonly used fundamental indicator among
respondents, followed by the Price-to-Earnings ratio. The Dividend Yield ratio and Debt-to-
Equity ratio are less frequently utilized, but they still play important roles in assessing different
aspects of a company's financial performance and health. These fundamental indicators help
investors make informed decisions when analysing stocks and assessing investment
opportunities.

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Question 8 : How do you assess a company's financial health in fundamental analysis?

How do you assess a company's financial No. of Respondents

health in fundamental analysis?
Income statement 18
Balance sheet 15
Cash flow management 6
All of the above 13

1. Income statement: 18 respondents reported using the income statement to assess a

company's financial health. The income statement provides a summary of a company's
revenues, expenses, and profits over a specific period.

2. Balance sheet: 15 respondents mentioned using the balance sheet. The balance sheet
provides a snapshot of a company's financial position at a specific point in time, showing its
assets, liabilities, and shareholders' equity.
3. Cash flow management: 6 respondents reported using cash flow management in their
assessment. Cash flow management involves analysing a company's cash inflows and outflows
to ensure it has sufficient liquidity to meet its financial obligations and invest in future growth.

4. All of the above: 13 respondents indicated that they use all three methods (income statement,
balance sheet, and cash flow management) to assess a company's financial health.

Overall, the data highlights the variety of methods employed by respondents in assessing a
company's financial health in fundamental analysis. While some focus on specific financial
statements like the income statement or balance sheet, others take a more holistic approach by
considering all three methods. This comprehensive analysis allows investors to gain a deeper
understanding of a company's financial position and make informed investment decisions.

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Question 9 : What role does market sentiment play in your stock analysis?

What role does market sentiment play in No. of Respondents

your stock analysis?
Significant 21
Moderate 18
Minimal 8
None 5

1. Significant: 21 respondents reported that market sentiment plays a significant role in their
stock analysis. This suggests that these respondents place a high importance on market
sentiment when making investment decisions

2. Moderate: 18 respondents mentioned that market sentiment plays a moderate role in their
stock analysis. This indicates that while these respondents consider market sentiment in their
analysis, they may also weigh other factors more heavily in their decision-making process.

3. Minimal: 8 respondents stated that market sentiment plays a minimal role in their stock
analysis. This suggests that these respondents place less emphasis on market sentiment
compared to other factors when evaluating investment opportunities

4. None: 5 respondents indicated that market sentiment plays no role in their stock analysis.
This implies that these respondents base their investment decisions solely on factors other than
market sentiment.

Overall, the data highlights varying degrees of importance placed on market sentiment among
respondents in their stock analysis. While some consider it significant or moderate, others view
it as playing a minimal or no role at all in their decision-making process. Understanding market
sentiment can provide valuable insights for investors.

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Question 10 : Do you consider technical analysis more suitable for short-term or long-term
investment decisions?

Investment Decisions No. of Respondents

Short-term 18
Long-term 20
Both 14

1. Short-term: 18 respondents reported making short-term investment decisions. This suggests

that these respondents prefer to invest in assets with the intention of holding them for a
relatively brief period, typically ranging from days to a few months.

2. Long-term: 20 respondents mentioned making long-term investment decisions. This

indicates that these respondents prefer to invest in assets with the intention of holding them for
an extended period, typically spanning several years or more.

3. Both: 14 respondents stated that they make both short-term and long-term investment
decisions. This suggests that these respondents may have a diversified investment strategy that
includes both short-term trading activities and long-term investment holdings.

Overall, the data highlights a diversity of investment preferences among respondents, with
some focusing on short-term opportunities, others prioritizing long-term growth, and some
employing a combination of both strategies. Understanding the different investment horizons
and strategies adopted by respondents is crucial for assessing their risk tolerance, investment
objectives, and overall approach to managing their investment portfolios.

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Question 11 : What challenges do you face in interpreting technical analysis charts?

What challenges do you face in No. of Respondents

interpreting technical analysis charts?
Understanding patterns 27
Identifying trend reversal 16
Timing entry and exit points 5
Other 4

1. Understanding patterns: 27 respondents reported facing challenges in understanding

patterns within technical analysis charts.

2. Identifying trend reversal: 16 respondents mentioned challenges in identifying trend

reversals within technical analysis charts.

3. Timing entry and exit points: 5 respondents stated challenges in timing entry and exit
points based on technical analysis charts.
4. Other: 4 respondents reported facing challenges not specified in the provided options.

Overall, the data suggests that understanding patterns and identifying trend reversals are the
most common challenges faced by respondents in interpreting technical analysis charts.
Additionally, timing entry and exit points pose a significant challenge for some respondents,
while others may encounter various other difficulties not covered by the provided options.
These challenges highlight the complexity and subjectivity involved in interpreting technical
analysis charts, requiring a deep understanding of chart patterns, technical indicators, and
market dynamics.

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Question 12 : How do you incorporate economic indicators into your stock analysis?

Economic indicators in stock analysis No. of Respondents

Employment data 12
GDP growth 23
Interest rates 9
Inflation rates 8

1. Employment Data (12 respondents): Employment data is seen as significant by 12

respondents in stock analysis. This suggests that a substantial portion of respondents believes
that employment figures, such as unemployment rates, non-farm payrolls, and job creation
2. GDP Growth (23 respondents): GDP growth is considered important by the largest number

of respondents, with 23 indicating its significance in stock analysis. This reflects the widely
acknowledged importance of overall economic growth in driving stock market performance
3. Interest Rates (9 respondents): Interest rates are deemed important by 9 respondents.
Interest rates set by central banks, such as the Federal Reserve in the United States, can
significantly impact borrowing costs.

4. Inflation Rates (8 respondents): Inflation rates are considered important by 8 respondents.

Inflation measures the rate at which the general level of prices for goods and services is rising
and is closely monitored by investors as it affects purchasing power and the real returns on
investments.

Interpreting this data collectively, it appears that GDP growth is perceived as the most
significant economic indicator in stock analysis, followed by employment data, interest rates,
and inflation rates, in descending order of importance, according to the number of respondents.

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Question 13 : What sources or tools do you use for collecting stock data for analysis ?

Sources or tools use for collecting stock No. of Respondents

data for analysis
Financial news websites 15
Stock market apps 27
Financial statements 5
Other 5

1. Financial News Websites (15 respondents): This suggests that 15 respondents rely on
financial news websites as a primary source for gathering stock data for analysis.

2. Stock Market Apps (27 respondents): Stock market apps are the most popular source
among the respondents, with 27 indicating their use.

3. Financial Statements (5 respondents): Financial statements are cited by 5 respondents as

a source for collecting stock data for analysis.

4. Other (5 respondents): The category of "Other" with 5 respondents suggests that there are
alternative sources or tools used for collecting stock data for analysis, which are not explicitly
mentioned in the provided options.

Interpreting this data collectively, it appears that stock market apps are the most favoured
source among respondents for collecting stock data for analysis, followed by financial news
websites, financial statements, and other unspecified sources, in descending order of popularity
according to the number of respondents. This highlights the diverse range of tools and resources
available to investors for conducting stock analysis and making informed investment decisions.

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 CHAPTER 5

CONCLUSION
In the realm of stock market analysis, both fundamental and technical analyses play pivotal
roles in guiding investment decisions. Fundamental analysis delves into the intrinsic value of
a stock by scrutinizing company financials, management quality, industry outlook, and
economic factors. Meanwhile, technical analysis focuses on historical price and volume data
to identify patterns and trends, aiding in predicting future price movements.

Fundamental analysis offers investors a comprehensive understanding of a company's

underlying health and growth potential. By evaluating key metrics such as earnings per share,
revenue growth, debt levels, and competitive positioning, investors can gauge the long-term
viability and profitability of an investment. This approach provides a fundamental framework
for assessing stocks, particularly for long-term investors seeking value and growth
opportunities.

On the other hand, technical analysis provides insights into short-term price movements and
market sentiment. Utilizing charts, indicators, and statistical analysis, technical analysts
identify patterns such as support and resistance levels, trends, and momentum shifts. While
technical analysis may not provide insights into a company's intrinsic value, it aids traders in
timing their entries and exits more effectively, thereby capitalizing on short-term price
fluctuations.

Both fundamental and technical analyses have their strengths and limitations. Fundamental
analysis offers a deep understanding of a company's fundamentals but may overlook short-term
market dynamics. Conversely, technical analysis excels in identifying short-term trends and
patterns but may lack the depth of understanding provided by fundamental analysis.
Successful investors often employ a combination of both approaches, leveraging the strengths
of each to make well-informed investment decisions. By integrating fundamental analysis to
identify strong companies with solid growth prospects and technical analysis to time entry and
exit points, investors can enhance their investment strategies and manage risk more effectively.

Ultimately, the choice between fundamental and technical analysis depends on an investor's
objectives, time horizon, and risk tolerance. While fundamental analysis guides long-term
investment decisions, technical analysis aids in short-term trading strategies. By understanding
and incorporating both methodologies, investors can navigate the complexities of the stock
market more adeptly, striving for consistent returns and wealth accumulation over time.

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