Macroeconomic And Industry Analysis

In a globalised business environment ,the top down analysis of the prospects of a firm must begin with the global economy.
The government employs two broad classes of macroeconomic policies viz. demand -side policies and supply side policies. The former are meant to influence the demand for goods and services and the latter the supply for goods and services.
Fiscal policy is concerned with the spending and tax initiatives of the government. Monetary Policy is concerned with the manipulation of money supply in the economy.
To determine the intrinsic value of an equity stock the security analyst must forecast the earnings and dividends expected from the stock and choose a discount rate which reflects the riskiness of the stock.
The earnings potential and riskiness of a firm are linked to the prospects of the industry to which it belongs. The prospects of various industries, in turn , are largely influenced by the development in the macroeconomic environment.
The macroeconomy is the overall economic environment in which all firms operate.
The development of almost every industry may be analysed in terms of a life cycle with four well defined stages: pioneering stage, rapid growth stage, maturity and stablisation stage, and finally decline stage.
Since each industry is unique, a systematic study of its specific features and characteristics must be an integral part of the investment decision process.
Michel Porter has argued that the profit potential of an industry depends on the combined strength of five basic competitive forces:

Threat of new entrants
Rivalry among the existing firms
Pressure from substitute products
Bargaining power of buyers
Bargaining power of Sellers

INDUSTRY ANALYSIS

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Money Markets Instruments

Money Market Securities in India The money market includes instruments for raising and investing funds for periods ranging from one day up to one year. Money market securities consist of repos/reverse repos, CBLOs ( collateralized borrowing and lending obligations),certificates of deposits, treasury bills, and commercial paper. All these securities are issued at a discount and redeemed at par, and are zero coupon in structure. Money markets also include inter-bank call markets that are overnight lending transactions between banks, inter- bank terms markets that are long term deposits between banks, and interoperate deposits, which are short term lending between companies. These transactions do not involve creation of a debt security and are therefore not included here. The Participants in the money market include banks, primary dealers, financial institutions, mutual funds, provident and pension funds, companies and the government. The purpose of the money market is to e...

NPV-Net Present Value :Capital Budgeting Concepts

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RISK in Investments

Investment decisions are a trade off between Risk and Return. Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome. Most investors are concerned about the actual outcome being less than the expected outcome. The wider the range of possible outcomes,the greater the risk. SOURCES OF RISK The three major sources of risk are: Business Risk Interest Rate Risk Market Risk Business Risk As a holder of corporate securities (equity shares and debentures) you are exposed to risk of poor business performance. This may be caused by a variety of factors like heightened competition, emergence of new technologies, development of substitute products , shifts in consumer preferences, inadequate supply of essential inputs,changes in governmental policies and so on. The principal reason might be inept and incompetent management. Interest Rate Risk The changes in interest rate have a bearing on the welfare of investo...

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