nccmp economy analysis

8/13/2019 NCCMP Economy Analysis

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Session 05


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NSE Certified Capital Market Professional

(NCCMP)


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Fundamental Analysis

Part 3


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Years0 1 2 3 4 5 6 7 8 9 10

A GNP projections a0 a1 a2 a3 a4 a5 a6 a7 a8 a9 a10

B Business cycle / Growth rate cycle

C Macro-economic policy changes

D Population projections

E Demographic profile

F Income distribution

G Industry life cycle

H Technological changes

I Industry related policy changes

J Industry sales estimates j0 j1 j2 j3 j4 j5 j6 j7 j8 j9 j10

K Quality of management

L Quality of technology

M Market share of the company

N Company sales estimates n0 n1 n2 n3 n4 n5 n6 n7 n8 n9 n10

O Net profit margin

P Net profit p0 p1 p2 p3 p4 p5 p6 p7 p8 p9 p10

Q Number of equity shares

Q EPS q0 q1 q2 q3 q4 q5 q6 q7 q8 q9 q10

Adjust Ofor

1. Increasing costs of scarce/non-renewable

resources.

2. Increasing cost of energy.

3. Increasing costs of environmentalconservation.

E-I-C Analysis Working Sheet


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Two of the important techniques used for

GNPprojections are :

Lead Indicators Method

In this method we identify economic variables

that change ahead of GNP. We also identify thehistorical correlation between the lead indicators and

GNP, and test it for its stability. This enables us to

forecast the magnitude and direction of change inGNP, and the probability of its accuracy. We also

estimate the mean time lag between the changes in the

lead variable and the change in GNP.


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GNP Model Building Method

In this method we break down GNP into itscomponents. GNP is given by C + I + G + X M,

where C = Consumption expenditure,

I = Investment expenditure,

G = Net Government expenditure,

X = Value of exports

M = Value of imports.

We try to obtain forecasts for each of these

components, and then add them up to obtain the

estimate of GNP.


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Once we obtain the GNP estimates, we lookinto the input-output relations and consumption

patterns to forecast sales of a particularindustry. Consumption patterns may changewith GNP.

However the GNP forecasts and theanalysis of input-output relations andconsumption patterns do not belong to the

domain of fundamental analysis. These exercisesare performed by public and private economicresearch organisations , and the results are usedby fundamental analysts.


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Click here

to go to

the webpage
http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economyhttp://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economyhttp://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economyhttp://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economyhttp://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economyhttp://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economyhttp://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economyhttp://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economyhttp://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economyhttp://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economy


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http://www.cmie.com/


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A GNP projections a0

BBusiness cycle /

Growth rate cycle

CMacro-economic policy

changes

D Population projections

E Demographic profile

F Income distribution

G Global changes

JIndustry sales

estimatesj0

These have an effect on

the GNP.

These have an effect onthe industry sales.

Economy wide variables


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Business Cycles


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Mechanism that drives a business cycleA recession occurs when a decline - however

initiated - occurs in some measure of aggregateeconomic activity and causes cascading declines inthe other key measures of activity. Thus, when a dipin sales causes a drop in production, triggering

declines in employment and income, which in turnfeed back into a further fall in sales, a vicious cycleresults and a recession ensues. This domino effectof the transmission of economic weakness fromsales to output to employment to income, feedingback into further weakness in all of these measuresin turn, is what characterizes a recessionary

downturn.


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At some point, the vicious cycle is broken andan analogous self-reinforcing virtuous cycle begins,with increases in output, employment, income andsales feeding into each other. That is the hallmark ofa business cycle recovery. The transition pointsbetween the vicious and virtuous cycles mark the

start and end dates of recessions.


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Leading indicators are designed to anticipatethe timing of the ups and downs in the business

cycle. They are related to the drivers of businesscycles in market economies, which include swingsin investment in inventory and fixed capital that

both determine and are determined by movementsin final demand.

They also include the supply of money or

credit, government spending and tax policies, andrelations among prices, costs and profits. Anunderstanding of these drivers can help identify thepredictors of the downturns and upturns.


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A minus sign denotes leads while a plus shows lags.

Indian Leading and Coincident Indexes, Growth Rates (%)

Growth rate cycles are simply the cyclicalupswings and downswings in the growth rate ofeconomic activity.


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Macro-economic Policy Changes

For complete report click here.
http://mgi_accelerating_india_growth.pdf/http://c/Users/ACER/Documents/PPT%20links/MGI_Accelerating_India_Growth.pdfhttp://mgi_accelerating_india_growth.pdf/http://c/Users/ACER/Documents/PPT%20links/MGI_Accelerating_India_Growth.pdfhttp://www.mckinsey.com/mgi/publications/india_growth/interactive.asp


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http://c/Users/ACER/Documents/PPT%20links/PwC-News-Alert-Direct-Tax-Code-FS-Update.pdf


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http://ppt%20links/Foreign%20Trade%20Policy%202010-14.pdf


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Population projections

Click for offline.
http://population_projection_report_2006.pdf/http://nrhm-mis.nic.in/UI/Public%20Periodic/Population_Projection_Report_2006.pdfhttp://population_projection_report_2006.pdf/http://nrhm-mis.nic.in/UI/Public%20Periodic/Population_Projection_Report_2006.pdfhttp://c/Users/ACER/Documents/PPT%20links/Population_Projection_Report_2006.pdf


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Demographic Profile


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Income Distribution

For report highlights click here.
http://mgi_india_consumer_executive_summary.pdf/http://c/Users/ACER/Documents/PPT%20links/MGI_india_consumer_executive_summary.pdfhttp://indian%20consumer%20boom.flv/http://mgi_india_consumer_executive_summary.pdf/http://c/Users/ACER/Documents/PPT%20links/MGI_india_consumer_executive_summary.pdfhttp://www.mckinsey.com/mgi/publications/india_consumer_market/slideshow/main.asp


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Global Changes

Global changes that may influence an industryssales or profit margins include :

An economic downturn effecting the exports.

A situation effecting the import of inputs.

Relative factor price changes.

Changes in forex rates.
http://c/Users/ACER/Documents/PPT%20links/The%20Great%20Recession%20and%20India%E2%B3%A0trade.pdf


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Click this for complete report.
http://c/Users/ACER/Documents/PPT%20links/The%20Great%20Recession%20and%20India%E2%B3%A0trade.pdfhttp://c/Users/ACER/Documents/PPT%20links/The%20Great%20Recession%20and%20India%E2%B3%A0trade.pdfhttp://c/Users/ACER/Documents/PPT%20links/The%20Great%20Recession%20and%20India%E2%B3%A0trade.pdf


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E f I di h di f


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Exports from India are : handicrafts, gems,jewelry, textiles, ready-made garments, industrialmachinery, leather products, chemicals and related

products and IT /BPO services. During the periodswhen the dollar was moving up against the rupee,exporters stood to gain - when $1 = `48, they got`4,800 for every $100. With the value of rupee at

`39.35 = $1 as on 16 Nov 2007, for every $100,exporters got only `3,935 for $100.

Imports to India are : petroleum products,

capital goods, chemicals, dyes, plastics,pharmaceuticals, iron and steel, uncut precious stones,fertilizers, pulp paper, etc. With the same scenario asgiven above, an importer is paying `3,935 now instead

of `4,800 paid earlier for every $100.


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http://z%20bse%201968.flv/