FUNDAMENTAL ANALYSIS

P.SARAVANAPANDIAP – HBS

TRICHY

ECONOMIC ANALYSIS

• GROWTH RATE OF NATIONAL INCOME – Gross National Product– Net National Product– Gross Domestic Product

HistoryData

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GNP , GDP , GNP ………..

http://mrunal-exam.blogspot.com/2009/12/economy-learning-basic-things-gdp-gnp.html

Economic Cycle or Business Cycle

• Economic Cycle or Business Cycle– Depression– Recovery– Boom– Recession

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Economic Cycle or Business Cycle

• Depression– Demand is low– Inflation is high – Interest rate high– Companies reduce

production– Shut down plant– Lay off workers

• Recovery – Economy begins to

revive– Demand picks up– Investment increase– Production increase– Employment increase– Profits increase

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Economic Cycle or Business Cycle

• Boom– High demand– Investment &

production are high– High profits– Boom slows down

• Recession – Demand slows down– Investment slows down– Production slows down– Employment slows down– Profits slows down

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ECONOMIC ANALYSIS • Inflation– Higher rates upset business plan – Cost escalation– Purchasing power reduces (people)– Lower demand for products – Inflation is measured • Wholesale price index(WPI)• Consumer price index(CPI)

• Types of inflation

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ECONOMIC ANALYSIS

• Interest rate (IR)– IR determine the cost and availability of credit to

the companies – Low IR increases profit – Monetary police & money supply (organized

sector)– In an unorganized sector IR will vary based on

demand & supply – Long term & short term interest rate

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ECONOMIC ANALYSIS

• Government revenue, expenditure and deficits– Government Investment – Government expenditure • Increases Jobs ,demand• Fortunes of many industry• Infrastructure

• Deficit budget

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Indian Government Expenditure Schedule

Interest 8%

Pensions 20%

Welfare 11%

Defense 16%

Health care 21%

Education 24%

ECONOMIC ANALYSIS • Exchange rates – Import and export (world currency)– Devaluation of rupee

• Exchange rates of rupee is influenced by– Balance of trade deficit

• The excess of import over export – Balance of payments deficit

• Net difference payable on account of all trade, services and capital transaction

– Foreign reserves • Payment for imports , services of foreign debts• FER is a strength of the rupee against other currencies.

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ECONOMIC ANALYSIS

• Infrastructure – Electricity – Roads and railways – Communication channels

• Bad Infrastructure leads to – Inefficiencies – Lower productivity , wastage and delay

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ECONOMIC ANALYSIS

• Monsoon – Linkages between agriculture and industry

• Economic and political stability – Steady and balanced growth – Economic policies

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Indian Monsoon

Dr. Manmohan Singh 22 May 2004 Onwards

ECONOMIC ANALYSIS

• Economic forecasting – Expected future performance segments – Future direction – National income – GNP

• Forecasting techniques– It is done only for a short period of 3 - 5 years

and more than 5 years

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Forecasting TechniquesShort term

• Anticipatory surveys– Government plan – Peoples expenditure plan

• Indicator approach / barometric– Leading indicators

• Avg.weekly hrs of production• Avg.weekly initial

unemployment • No .of new building permits

issused • Index of S&P 500 stock price • Money supply

Short term – Coincidental indicators

• Employees on non agricultural pay rolls

• Personal income less transfer payments

• Index of industrial production

– Lagging indicators • Avg.duration of unemployment • Ration of manufacturing and

trade inventories to sale • Avg.prime rate

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ECONOMIC ANALYSIS • Econometric model building – Econometrics is used– Interrelationship variables – Assumptions in economics– It is complex vast data is required – More Time

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ECONOMIC ANALYSIS

• Opportunistic model building – It is used commonly – It know as GNP model building or Sectoral analysis– Existing tax rate , interest rates, rate of inflation ….– Calculation of GNP

• SELF STUDY

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