Raghu Palat - Fundamental Analysis for Investors: 4th Edition

Fundamental analysis is an essential, core skill in an investor's tool-kit for evaluating a company on the basis of its track record: sales, earnings, dividends, products, management, etc., as well as the economic and industry outlook. It is a value-based approach to stock market investing solid and prudent that typically offers handsome profits to the long-term investor.

Raghu Palat's book will help you master the essentials of fundamental analysis. It clearly explains, with examples, all the analytical tools of economic, industry and company analysis, including ratios and cash flow. It shows you how to judge a company's management and its products, and discover what actually lies behind the figures and notes in a company's annual report. And, most usefully, how to calculate the intrinsic value of a share.

Fundamental analysis will help you base your investment decisions on relevant information, not tips, hunches or assumptions. Doing that will help you make solid, consistent long-term profits. Legendary contemporary investors like Warren Buffett and Peter Lynch used basically this approach to amass fortunes on the stock market. So can you.

P RAISE FOR THE B OOK

A priceless primer. Business Today

A masterly introduction to fundamental analysis. Times of India

Discouraging the use of tips and rumours, Palat introduces the reader to aspects of fundamental analysis so that he can arrive at the intrinsic value of any share and make informed decisions.

Business India

This book brims with accurate, immediate and relevant examples of Indian companies and our stock market behaviour

Indian Review of Books

Educates readers The Economic Times

RAGHU PALAT is an acknowledged authority on investment, finance and banking and has written more than thirty extremely well received books on these subjects.

A great grandson of His Highness, the late Rama Varma, Maharaja of Cochin and Sir Chettur Sankaran Nair (a member of the Viceroys Privy Council and a former President of the Indian National Congress), Raghu Palat is a Fellow of the Institute of Chartered Accountants in England & Wales.

A career banker he has held very senior positions with multinational banks in India and abroad. He has worked in Europe, America, Asia and Africa.

Raghu Palat is presently a consultant to banks. He also manages a dedicated finance portal called www.bankingrules.com which is a repertoire of rules and regulations relating to finance, commerce, corporates and banks. In addition, he conducts workshops on business etiquette, effective business writing, presentation skills, banking and finance.

Mr. Palat has also set up a portal for e-learning www.ibbc.co.in. The courses are an amalgam of laws, directives and actual real life situations.

Raghu Palat lives in Mumbai with his wife Pushpa, two daughters, Divya and Nikhila and their cocker spaniel Champ.

To my mother-in-law
Vasanta A. Nair

Disclaimer

The author and the publisher disclaim all legal or other responsibilities for any losses which investors may suffer by investing or trading using the methods described in this book. Readers are advised to seek professional guidance before making any specific investments.

ALL RIGHTS RESERVED; no part of this publication may be reproduced,
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electronic, mechanical, photocopying, recording, or otherwise without
the prior written permission of the Publisher. This book may not be
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A Vision Books Original First eBook Edition, 2016

First Published 1994, Second Edition, 2000

Third Edition, 2004, Fourth Edition, 2010

Reprinted 2011, 2013, 2015

eISBN 10: 81-7094-942-4

eISBN 13: 978-81-7094-942-8

Raghu Palat, 1994, 2016

Published by

Vision Books Pvt. Ltd.

(Incorporating Orient Paperbacks and CARING Imprints)
24 Feroze Gandhi Road, Lajpat Nagar 3
New Delhi 110024, India.

Phone: (+91-11) 2984 0821 / 22

e-mail:

The Indian capital market is vibrant and alive. Its growth in the last three decades has been phenomenal. In 1983, market capitalization of the shares quoted in the Bombay Stock Exchange amounted to a mere US $7 billion. It grew to US $65 billion in 1992; to US $220 billion by April 2000; to US $ 428 billion in 2003, and hit US $ 1,350 billion (Indian Rs. 60,78,034 crore) in May 2010. Not just that. In May 2010, 4,078 companies were quoted on the Bombay Stock Exchange making it one of the largest such exchange in the world.

The ride has been tumultuous. The growth of the market began with the FERA dilution, i.e. when foreign companies were compelled to dilute their holdings in their Indian entities. The interest in the stock market grew with speculators and others entering the arena. Though one may question their methods, individuals such as the late Harshad Mehta must be recognized as people who did much to create an awareness of the market which led Indias middle class to start investing in shares. The reforms following the liberalization of the early 1990s, the entry into this market of foreign institutional investors (FIIs) and mutual funds, coupled with scams and downturns, forced many an individual investor out of the market. The bursting of the dotcom bubble and the Ketan Parekh scam heightened the average investors fears. It is interesting to note that the individual who invested in the market during the boom in the third quarter of 2003 is the young, new generation investor investors who had not lost monies in the earlier Harshad Mehta or Ketan Parekh scams. Then in the boom of 2006-07, the index soared culminating at 21,078 on 8 January 2008 before falling to below 10,000 within a year in the wake of the world wide economic depression.

And, yet, the investor dreams even after he has been mauled. This is because the share market can make one wealthy beyond ones wildest dreams. With the boom in IT shares, for example, Azim Premji of Wipro was for a brief period the second richest man in the world (after buffetting away Warren Buffett from that position) and Infosys Chairman K. Narayanamurthy was, at one time, worth in excess of Rs. 14,000 crore.

During the last two decades, the manner of trading in the markets has changed from the traditional floor (trading ring) outcry to screen based trading with brokers linked to the major stock exchanges. Shares that are traded in stock exchanges are now dematerialized making sales / purchases and transfers easy. Payment for shares sold is made within a few days.

Information has exploded. At one time there was an acute dearth. Now it is like a tornado. There are very good reports on companies. There are probing analyses done on performance. There are studied forecasts made. There are intelligent conclusions drawn. The information is there. Any investor can access it. And the investor must access it and, having accessed it, he must, manage the information.