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    SECURITY ANALYSIS AND PORTFOLIO

    MANAGEMENT

    (Fundamental analysis for EMAMI LTD)

    By

    HEMNATH.D

    08MBI042

    MBA (Integrated)

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    FUNDAMENTAL ANALYSIS

    Fundamental Analysis is the examination of the underlying forces that affect the

    well being of the economy, industry groups, and companies. As with most analysis, the goal is

    to derive a forecast and profit from future price movements. At the company level fundamental

    analysis may involve examination of financial data, management, business concept and

    competition. At the industry level, there might be an examination of supply and demand forces

    for the products offered. For the national economy, it might focus on economic data to assess

    the present and future growth of the economy. To forecast future stock prices, this analysis

    combines economic, industry, and company analysis to derive a stock's current fair value and

    forecast future value. If fair value is not equal to the current stock price, analysts believe that

    the stock is either over or under valued and the market price will ultimately gravitate towards

    fair value. Fundamental lists do not heed the advice of the random walkers and believe that

    markets are weak-form efficient. By believing that prices do not accurately reflect all available

    information, analysts look to capitalize on perceived price discrepancies.

    ECONOMY ANALYSIS

    GDP:

    India's economy grew at a higher-than-expected 5.5 per cent in the quarter ending in June,

    against analysts' forecasts of 5.3 per cent, government data showed on Friday. Economic

    growth in Asia's third largest economy slipped to 6.5 per cent in 2011/12 fiscal year ending in

    March from an annual rate of 8.4 per cent in the two previous fiscal years. India's economy

    would grow at 6.7 per cent in the current fiscal year, less than an earlier estimate of 7.5-8.0 per

    cent, Prime Minister Manmohan Singh's Economic Advisory Council said two weeks ago.

    "Sense of relief was palpable in the domestic financial markets after the stronger-than-expected

    Q2 GDP print. Whilst an upside surprise at 5.5 percent, the pace of growth is undeniably below

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    potential and validates the need for the government to address sluggishness in investment and

    external sector activity.

    The country's economic growth in the current fiscal is expected to remain below 6 per cent,

    possibly due to low confidence levels in the industry, a survey today said.

    "A majority of CEOs remain pessimistic about the outlook for the economy in the current year

    and expect only a moderate recovery in the forthcoming year," CII said in its survey.

    The survey indicated that the GDP growth during 2012-13 is expected to remain below 6 per

    cent, it said.

    "This reflects low confidence levels in industry. The first quarter GDP numbers corroborate the

    fact that the slowdown is sustaining. Our best hope would be that the economy is bottoming

    out," CII Director General Chandrajit Banerjee said in a statement.

    However, from the results of the snap poll or from government data, the industry body does not

    have adequate indicators to substantiate this hypothesis.

    Poor showing by the manufacturing sector pulled down the GDP growth to 5.5 per cent in the

    April-June quarter, the decade's worst Q1 performance.

    Over half of the 75 CEOs who participated in the survey expect the average rate of inflation in

    this financial year to be in the range of 7-8 per cent.

    About 75 per cent of the respondents do not expect economic reforms - introduction of GST,

    FDI in multi-brand retail and FDI cap in insurance and pension sectors - to move forward given

    that general elections are coming up in 2014.

    Majority of the respondents expect both domestic and international investment either to

    increase or remain unchanged during 2012-13, CII said.

    RBI has projected the country's economic growth at 7.3 per cent this fiscal, even as it has

    assessed the inflation rate to rule at around 6.5 per cent by end-March, 2013.

    "The global outlook looks slightly better than expected earlier. Overall, the domestic growth

    outlook for 2012-13 also looks a little better than in 2011-12," Reserve Bank of India (RBI)

    Governor D. Subbarao said in a statement.

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    INFLATION:

    The country's wholesale inflation unexpectedly dropped to near three-year low of 6.87 per cent

    in July from 7.25 per cent in June, while consumer price inflation slowed slightly to 9.86 per

    cent from 10.02 per cent. "Also, construction number looks abnormally strong. On paper this

    looks good, but there is some scope of revision in the GDP data. For RBI, I guess it will

    possibly help them to explain their anti-inflation stance. But even if on relative basis the

    number looks good, overall it is still weak. If we look at the first half of 2012, growth is 5.4

    percent compared with 6.4 percent in second half of 2011.

    CURRENCY RATES:

    "Likely to take some of the heat out of USD/INR but only at the margin. The RBI still

    maintains a hawkish bias and rate cuts still seem some way off. Asian data momentum has not

    been great in Q3 so difficult to see a dramatic improvement in Q3." But for the companies

    doing operation in abroad from india has a greater benefit from currency rates.

    MONETARY POLICY:

    I don't think that today's growth number will lead to any change in the Reserve Bank of India's

    monetary policy stance. It is unlikely that there will be a rate cut before the fourth quarter of the

    current fiscal year ending in March 2013.

    IIP:

    India's industrial production has contracted 1.8% during June 2012 compared with 2.5% growth

    in May 2012. This was mainly due to sharp fall of 27.9% in capital goods. June industrial

    production came in the red down 1.8%, lower than ours and consensus estimates.

    Consequently, on a cumulative basis, factory output was -0.1% in 1QFY13 v/s 7% in the same

    period last year. The production numbers will have a bearing on the 'value-add'

    industry numbers for 1QFY13 GDP. This coupled with sub-par monsoons and the deceleration

    seen in some of the service sectors could result in a sub 5% 1Q FY13 GDP print due on Aug

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    31. This is largely in line with our recently revised FY13 GDP estimate at 5.4% with the base

    effect having a positive impact on 3Q/4Q trends.

    Industrial Production in India decreased 1.8 percent in June of 2012. Historically, from 1994

    until 2012, India Industrial Production averaged 7.4 Percent reaching an all time high of

    20.0 Percent in November of 2006 and a record low of -7.2 Percent in February of 2009.

    Industrial production measures changes in output for the industrial sector of the economy

    which includes manufacturing, mining, and utilities. Industrial Production is an important

    indicator for economic forecasting and is often used to measure inflation pressures as

    high levels of industrial production can lead to sudden changes in prices. This page

    includes a chart with historical data for India Industrial Production

    Rating agency CRISIL cut its growth forecast to 5.5 percent for the fiscal year ending March,

    just two months after pruning its projection to 6.5 percent from 7 percent.

    POLITIAL SYSTEM:

    Formation of a stable government at the Centre will have positive implications for Indias

    sovereign rating, global agency Standard and Poor's today said without indicating when it

    would review country's rating. Generally speaking political stability is a positive factor for the

    sovereign ratings. Because of strong mandate, next government will have a better opportunity

    to execute its policy agenda.

    INDUSTRY ANALYSIS:

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    HEALTH CARE

    As with virtually every other segment of the global economy, including software, financial

    services, manufacturing etc, the healthcare industry is becoming increasingly global in nature.

    Since independence in 1947, India has come a long way in achieving basic health goals. The

    Indian healthcare sector has now become the largest service sector. Since public and

    government funding has proved inadequate, the private sector and foreign direct investment has

    been encouraged to participate in developing this sector.

    As world class medical facilities become available, the process of marketing specialized

    healthcare to patients from overseas is being facilitated by private healthcare sector, the tourism

    sector and the government of India. The Indian National Medical Policy of 2002 strongly

    encourages the providing of such health services to overseas patients to capitalize on the

    country's comparative cost advantage. The providers of such services are encouraged by giving

    these services the status of "deemed exports".

    Several initiatives have to succeed. India is rushing to develop an integrated system to link

    travel agencies, healthcare providers, insurers and patients. The popular stereotype image of

    India as a hot country with poverty, squalor and undeveloped infrastructure definitely does not

    help. The image of poverty and bad hygiene impacts the level of confidence that one needs to

    have before going to India for a medical procedure.

    GROWTH:

    The rate of growth of the