Security analysis calls for collection of vast information relating to industry, company and market. The market for securities can be regarded as perfect when demand and supply forces determine the prices of securities.
Availability of money and flow of information into market largely affect the demand and supply forces. Besides the market price, the investors are interested in knowing the intrinsic value of shares. Intrinsic value of shares means the value of net assets available per equity share of the company.
Intrinsic value always revolves around the market price. When the intrinsic value is less than the market price, it is advisable to sell the shares. On the other hand, investors intend to buy securities when the intrinsic value of shares held is more than the market price. Thus, the market analysis and estimate of intrinsic value require collection of information from the appropriate sources.
The sources of such information and the types of information needed for security analysis are briefly explained as follows.
The sources and types of information are—
- World affairs
- Domestic economic and political factors
- Industry information
- Company information
- Security market information
- Security price quotations
- Data on related markets
- Data on mutual funds
- Data on New Issue market
- Financial information.
1. World affairs
International factors such as international political developments, wars, foreign markets etc., influence domestic income, output, employment and investment for domestic market. Besides, Financial journals like Economic Times, Financial Express and Business Line etc., report on world economic affairs.
Apart from this, foreign journals like London Economist, Far East Economic review and Indian journals like Business India, Fortune India etc., give day-today developments that took place abroad, relating to trade and commerce. IMF News Survey, World Bank and IMF Quarterly Journals, Newsletters of Foreign Banks like Grindlays, Standard Chartered etc., report on world developments.
2. Domestic Economic and Political factors
Domestic economic and political factors relate to Gross Domestic Products (GDP), agricultural output, monsoon, money supply, inflation, Government policies, taxation etc. Besides the leading newspapers, financial dailies like Economic Times. Financial Express, Business Line etc., report regularly on national economic policies and the domestic economy. Also, journals like Economic and Political Weekly, Business India, Business Today, Fortune India etc., report on the economic developments. The reports of the Planning Commission and annual reports of various ministries, RBI Annual Bulletins, Reports on Currency and Finance provide information on economy, industry and trade sectors of our country.
3. Industry information
Industry information is quite essential for investment decision-making. It includes market demand, installed capacity, capacity utilization competitor’s activities and their share in the market, market leaders, prospects of the industry, requirements of foreign buyers, inputs and capital goods in foreign countries. import substitutes, industrial policy and labour policy of the Government. etc.
The monthly reports of various associations, Government publications, daily financial papers, Directory of Information published by Bombay Stock Exchange, reports of the Planning Commission, associations such as Chambers of Commerce, Merchants’ Chamber etc., give a wealth of information on industry.
4. Company information
Company information relates to the corporate data, annual reports, Stock Exchange publications, Department of Company Affairs’ circulars, press releases on corporate affairs by Government, industry, chamber etc. Financial papers, fortnightly journals of capital market, Dalai Street, Business India furnish information about the companies listed on recognized stock exchanges. They also publish the results of equity and market research. Weekly Reviews and monthly reviews of Bombay Stock Exchange provide useful information required for security analysis.
5. Security market information
Investment management needs information about security market. The credit rating of companies, market trends, security market analysis, market reports, equity research reports, trade and settlement data, listing and delisting records, book closures, BETA factors etc., are called security market information.
Financial papers like Economic Times, Business Line, Financial Express etc., report on trade cycles and settlements, record dates, book closures etc. Charted Financial Analyst reports on economic data, company information, market information, security analysis, beta factors etc., which help in security analysis. Stock market journals like The Capital Market, Dalai Street, Business India, Fortune India, Investment Week etc., carry information extensively on security markets.
6. Security Price quotations
Generally, technical analysis is based on security price quotations. These include price indices, price and volume data, breadth, daily volatility etc. Each stock exchange publishes daily prices and also low and closing quotations of securities traded in it. It also publishes volume of trade for securities. Daily quotations are also reported by reputed dailies, RBI, Bombay stock Exchange and OTCEI publish price indices for securities both industry wise and region wise.
Moreover, The Capital Market and Dalai Street journals contain information on Price Earnings, Earning per share along with prices. The Bombay Stock Exchange (B.S.E.) Directory deals with the pattern of shareholding, distribution schedule, floating stock, past price data.
Government securities market, money market and forex market are closely related to security market. Publications of RBI, DFHI, Indian Banks Associations, Securities Trading Corporation, Banks, NSE give data on such related markets. RBI publications, Foreign Exchange Dealers Associations and foreign banks particularly report on forex market.
Financial dailies contain exchange rates and cross currency rates. The developments of Govt. Securities market, money market and forex market are reviewed by dailies, weeklies and fortnightly journals. Data on forex markets are reported by London Economist, Far Eastern Economic Review and Wall Street Journal.
8. Data on Mutual Funds
Various schemes of mutual funds and their performance, Net Asset Value (NAV) and repurchase prices are useful in analyzing various investment avenues available to modern investors.
Daily financial papers, Investment Weekly and Investors’ Guide publish data on mutual funds. They contain information on current mutual fund schemes, NAV of each scheme, repurchase price, redemption rate of close-ended funds, daily purchase and sale prices for open-ended funds. Most of the schemes of mutual fund are quoted on the stock exchanges. In addition, Capital Market, Dalai Street and Business India also give information on mutual funds.
9. New issue market
New issue market is the primary market for securities. In this market, companies issue securities to the investors directly for raising long-term capital. Reports of the merchant bankers and SEBI have first hand information on the various new issues floated in the market. They get draft prospectus for vetting. A magazine called Prime Publications publishes all information relating to the new issues that are in the pipeline.
Merchant brokers, underwriters and brokers in the new issue market analyze the performance of the issuing companies. Cable operators, financial journals, etc., give write ups on forthcoming issues. Reserve Bank of India and Department of Company Affairs publish periodically data on new issues in the primary market.
10. Financial information
The Balance sheet analysis done by stock markets is based on the financial data furnished by financial statements of a company. The term ‘financial statements’ refers to the balance sheet, or other statements of financial position of a company and the income and expenditure statement or the profit and loss statement. In addition, the profit allocation statement reconciles the balance in this account at the end of the period with that at the beginning. Thus, financial statements contain a summary of the accounts of a company over a period of one year i.e., one financial year (from 1st April to 31st March). The Balance Sheet shows the assets, liabilities and capital at the end of the year.
The financial statements of a company help financial analysts to know the financial soundness of the company and its management. Financial statements help the investors in ascertaining whether it is profitable to invest in securities of a particular company.