NEHA AJMERA

The intrinsic value of an equity share depends on a multitude of factors. The earnings of the company, the growth rate and the risk exposure of the company have a direct bearing on the price of the share. The fundamental school of thought appraised the intrinsic value of shares through. • Economic Analysis • Industry Analysis • Company Analysis ECONOMIC ANALYSIS The level of economic activity has an impact on investment in many ways. If the economy grows rapidly, the industry can also be expected to show rapid growth and vice versa. When the level of economic activity is low, stock prices are low, and when the level of economic activity is high, stock prices are high reflecting the prosperous outlook for sales and profits of the firms. The analysis of macro economic environment is essential to understand the behaviour of the stock prices. The commonly analysed macro economic factors are as follows. GROSS DOMESTIC PRODUCT (GDP)-GDP indicates the rate of growth of the economy. GDP represents the aggregate value of the goods and services produced in the economy. GDP consists of personal consumption expenditure, gross private domestic investment and government expenditure on goods and services and net export of goods and services. The estimates of GDP are available on an annual basis. The rate of growth of GDP is around 6% in the nineties. The GDP growth in 1998-99 has accelerated to 5.8 percent compared to 5 per cent of the previous year. The growth rate of economy points out the prospects for the industrial sector and the return investors can expect from investment in shares. The higher growth rate is more favourable to the stock market. SAVINGS AND INVESTMENT It is obvious that growth requires investment which in turn requires substantial amount of domestic savings. Stock market is a channel through which the savings of the investors are made available to the corporate bodies. Savings are distributed over various assets like equity shares, deposits, mutual fund units, real estate and bullion. The saving and investment patterns of the public affect the stock to a great extent. INFLATION-Along with the growth of GDP, if the inflation rate also increases, then the real rate of growth would be very little. The demand in the consumer product industry is significantly affected. The industries which come under the government price control policy may lose the market, for example Sugar. The government control over this industry, affects the price of the sugar and thereby the profitability of the industry itself. If thee is a mild level of inflation, it is good to the stock market but high rate of inflation is harmful to the stock market. INTEREST RATES-The interest rate affects the cost of financing to the firms. A decrease in interest rate implies lower cost of finance for firms and more profitability. More money is available at a lower interest rate for the brokers who are doing business with borrowed money.